ATO Interpretative Decision

ATO ID 2007/65

Excise

Fuel Tax Credits: environmental criteria and motor vehicles used primarily on an agricultural property - relevance of time
FOI status: may be released
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is a motor vehicle that is used more than 50of the time on an agricultural property, being used primarily on an agricultural property for the purposes of paragraph 41-25(2)(a) of the Fuel Tax Act 2006 (FTA)?

Decision

Yes. A motor vehicle that is used more than 50of the time on an agricultural property is being used primarily on an agricultural property for the purposes of paragraph 41-25(2)(a) of the FTA.

Facts

An entity operates a business which is a 'primary production business' as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997.

The entity uses a diesel single axle tray truck with a gross vehicle mass of over 4.5 tonnes in carrying on the primary production business.

The diesel tray truck is used daily to transport fertiliser, seed and other goods around the agricultural property.

During the harvest season, the vehicle is also used to transport the harvested crop on a public road to a storage facility which is approximately 20 kilometres away from the property.

The harvest season lasts for approximately four weeks of the calendar year.

The entity estimates that in a calendar year, 60of the total kilometres travelled occur during the harvest season on public roads. The remaining 40of the total kilometres are undertaken on the agricultural property.

Reasons for Decision

Paragraph 41-25(2)(a) of the FTA provides that the environmental criteria requirement in subsection 41-25(1) of the FTA does not apply to a motor vehicle:

(a)
that is used:

(i)
in carrying on a primary production business; and
(ii)
primarily on an agricultural property

In determining whether the motor vehicle is not required to comply with the environmental criteria of subsection 41-25(1) of the FTA, the motor vehicle must meet the requirements of both subparagraphs 41-25(2)(a)(i) and 41-25(2)(a)(ii) of the FTA.

The first limb of the test is that the motor vehicle must be used in a primary production business. The term 'primary production business' is defined in section 110-5 of the FTA as having the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997. The entity is using the vehicle in carrying on a primary production business for the purposes of subsection 41-25(1) of the FTA.

The second limb of the test is that the motor vehicle must be used 'primarily on an agricultural property'.

The term 'primarily' is not defined in the FTA. Therefore, it takes on its ordinary meaning. The Macquarie Dictionary, 2001, revised 3rd edition, The Macquarie Library Pty Ltd, NSW relevantly defines 'primarily' as 'in the first place; chiefly; principally'.

The term 'primarily' was considered in Taxation Ruling TR 96/8 in relation to the deductibility of certain contributions made to school building funds. Relevantly, the Ruling considered that a valid school building fund will only be present where the primary and principal use of the building is as a school or college. Paragraph 61 of TR 96/8 states that:    


A building will be accepted as being primarily and principally used as a school or college if the building is used as a school or college more than 50of the time.

Judicial consideration of phrases similar to 'primarily' support the position that the term should be interpreted as 'more than half'.

For example, Fawcett Properties Ltd v. Buckingham County Council [1961] AC 636 included a discussion of the definition of the term 'mainly' which is similar to 'primarily'. Lord Morton of Henryton stated (at 669) that it means 'more than half'.

In Taxation Ruling TR 2001/7, the Commissioner held that implicit in the word 'mainly' is that such a phrase is used to represent a percentage equating to more than half of any relevant amount.

Therefore, it is considered that the term 'primarily', in the context of whether a motor vehicle was used 'primarily' on an agricultural property, should be interpreted in a quantitative sense, consistent with judicial reasoning and in a practical and commonsense manner.

The Commissioner is of the view that a motor vehicle that is used more than 50of the time on an agricultural property is a vehicle that is being used primarily on an agricultural property for the purposes of paragraph 41-25(2)(a) of the FTA.

In this case the total distance the vehicle travelled away from the agricultural property over the calendar year outweighed the total distance travelled on the agricultural property. However, a review of the time the vehicle is used both on and off the agricultural property over the same period shows that the vehicle was used regularly on a day to day basis on the agricultural property. As the motor vehicle was used on an agricultural property for an amount of time equating to more than half of the time that the vehicle was used during the calendar year, it is considered that the vehicle was used primarily on an agricultural property for the purposes of paragraph 41-25(2)(a) of the FTA.

[HISTORY: This ATOid was amended on 27 April 2007 to clarify the document.]

Date of decision:  22 March 2007

Legislative References:
Fuel Tax Act 2006
   subsection 41-25(1)
   paragraph 41-25(2)(a)
   subparagraph 41-25(2)(a)(i)
   subparagraph 41-25(2)(a)(ii)
   section 110-5

Income Tax Assessment Act 1997
   subsection 995-1(1)

Case References:
Fawcett Properties Ltd v. Buckingham County Council
   [1961] AC 636

Related Public Rulings (including Determinations)
Taxation Ruling TR 96/8
Taxation Ruling TR 2001/7

Related ATO Interpretative Decisions
ATO ID 2007/100

Other References:
The Macquarie Dictionary, 2001, revised 3rd edition, The Macquarie Library Pty Ltd, NSW

Keywords
FTC environmental measures
FTC vehicle emissions
Fuel tax credits

Siebel/TDMS Reference Number:  5585849

Business Line:  Indirect Tax

Date of publication:  5 April 2007

ISSN: 1445-2782