ATO Interpretative Decision

ATO ID 2004/781

Excise

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Are earthworks carried out shortly after an entity has ceased cultivating crops, in order to prepare the property for a new agricultural activity, an 'agricultural construction activity' as defined in section 25 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

Yes. Earthworks carried out shortly after an entity has ceased cultivating crops, in order to prepare the property for a new agricultural activity, are an 'agricultural construction activity' as defined in section 25 of the EGCSA.

Facts

An entity has been carrying out the activity of growing crops.

The entity ceases growing crops, and shortly thereafter undertakes earthworks to transform the property so that the rearing of live-stock can commence on the property. It is necessary that the growing of crops ceases, in order for the earthworks to commence. Both the former activity (crop growing), and the new activity (live-stock rearing) are carried on in the form of a business with a view to obtaining produce for sale.

As part of the transformation of the property, the entity engages an earthmoving contractor to undertake earthworks to enable the new activity to commence.

Reasons for Decision

Section 53 of the EGCSA provides that, subject to the conditions and restrictions specified in the Energy Grants (Credits) Scheme Regulations 2003, an entity is entitled to an off-road credit if they purchase or import into Australia off-road diesel fuel for a use by them that qualifies, including 'primary production'.

'Primary production' is defined in section 21 of the EGCSA to mean a number of activities including agriculture. 'Agriculture' is defined in section 22 of the EGCSA to include an 'agricultural construction activity', which is defined in turn in section 25 of the EGCSA.

In this situation, the most pertinent activity is in paragraph 25(e) of the EGCSA, which states that the expression 'agricultural construction activity' means:

the carrying out of earthworks for use in a core agricultural activity if the earthworks:

(i)

are carried out on the agricultural property where the core agricultural activity is carried on; and

(ii)

are carried out by the person who carries on the core agricultural activity or by a person contracted by that person to carry out the earthworks.

Therefore, the activities will be an agricultural construction activity if the earthworks:

•

are for use in a core agricultural activity

•

are carried out on the agricultural property where that core agricultural activity is carried on, and

•

are carried out by the person who carries on the core agricultural activity or a person contracted by that person.

Each test will be considered in turn.

1. Are the earthworks for use in a 'core agricultural activity'?

'Core agricultural activity' is defined in section 31 of the EGCSA, and means any of the following activities:

(a)

the cultivation of the soil

(b)

the cultivation or gathering in of crops

(c)

the rearing of live-stock, or

(d)

viticulture, horticulture, pasturage or apiculture

provided that they are undertaken for the purpose of or for purposes that will directly benefit a business undertaken to obtain produce for sale.

In this case the earthworks are clearly for use in the new core agricultural activity, and the new core agricultural activity will be undertaken for the purpose of a business undertaken to obtain produce for sale. Therefore the first test is met.

2. Are the earthworks being carried out on the agricultural property where that core agricultural activity is carried on?

The EGCSA specifically requires that the earthworks be carried out on the agricultural property where the core agricultural activity that the earthworks will be used in, is carried on.

The cessation of all growing activities while the property is being prepared to grow a new crop could be taken as indicating that the new core agricultural activity is not yet being carried on.

The case of Australian National Railways Commission v. Collector of Customs, SA (1985) 8 FCR 264 (ANR Case) provides some guidance on this matter. In this case, Davies J stated:

Although the diesel fuel rebate provisions use simple language, they are intended to be applied in a practical, commonsense manner to commercial operations.

The case of Re Central Norseman Gold Corporation Limited and Collector of Customs, Western Australia AAT No W84/118; (1985) 8 ALN N 288 is further authority for this practical, commonsense approach.

Both cases apply to the Energy Grants (Credits) Scheme as it is the successor to the Diesel Fuel Rebate Scheme and its provisions are very similar to those of the Diesel Fuel Rebate Scheme.

Therefore, the practical, commonsense approach put forward by Davies J, in the ANR Case, should be adopted in this present case.

In this instance:

•

The farmer has been carrying on a core agricultural activity for the purpose of obtaining produce for sale.

•

As part of that business, the farmer has decided to change the nature of the activity carried out on the property.

•

It is accepted that changing the nature of one's farming activities is a common practice in the course of a continuing farming business. Such a change may be triggered by a variety of factors, including relative commodity prices, climate fluctuations, or the need to allow land to recover from a particular activity.

Therefore, although there has been a change in the nature of the core agricultural activity being carried on, it is considered sufficient that core agricultural activities continue to be carried on by the farmer on the property. It is not necessary that the core agricultural activity for which the earthworks are undertaken is carried on at the time of the earthworks, provided a core agricultural activity is carried on. Even a temporary cessation of all farming activities would not be considered to amount to a cessation of the farmer's business, provided the farmer fully intends to recommence a farming activity.

However, it remains to be determined if the property is an 'agricultural property'.

The term 'agricultural property' is not defined in the EGCSA. The issue of what constitutes an agricultural property for the purposes of the diesel fuel rebate scheme was considered in Raymond Cedric and Brian Richard Wallace v. CEO of Customs [1998] AATA 633 (25 June 1998); (1998) 27 AAR 430 (Wallace).

Wallace is authority for the view that an agricultural property is a property on which the activities of cultivation of the soil, the growing and gathering in of crops or the rearing of livestock or a mixture of more than one of these activities are carried out for the purpose of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

Clearly, in this case, the property is indeed an 'agricultural property' as it is the property on which the core agricultural activity is being carried on.

Therefore, in this instance, the earthworks are being carried out on the agricultural property where the core agricultural activity that the earthworks are for use in, is being carried on.

Consequently, the second test is met.

3. Are the earthworks carried out by the person who carries on the core agricultural activity, or a person contracted by that person?

As the earthworks are being carried out by a person contracted to the farmer who is carrying out the core agricultural activity, this test is also met.

Accordingly, earthworks carried out shortly after an entity has ceased cultivating crops, in order to prepare the property for a new agricultural activity, are 'an agricultural construction activity' as defined in section 25 of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   section 21
   section 22
   section 25
   paragraph 25(e)
   section 31
   section 53

Case References:
Australian National Railways Commission v. Collector of Customs, SA
   (1985) 8 FCR 264

Related ATO Interpretative Decisions
ATO ID 2003/1162
ATO ID 2004/64
ATO ID 2004/740
ATO ID 2004/741
ATO ID 2004/742
ATO ID 2004/743
ATO ID 2004/744

Keywords
EGCS agriculture
EGCS agricultural construction activity

Business Line:  Excise

Date of publication:  24 September 2004

ISSN: 1445-2782