ATO Interpretative Decision

ATO ID 2004/465 (Withdrawn)

Excise

• This ATO ID is withdrawn because it is superseded by paragraphs 172 to 175 of Product Grants and Benefits Ruling PGBR 2005/1.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the kiln drying of timber at a sawmill as part of the milling process 'forestry' as defined in section 35 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

Yes. The kiln drying of timber at a sawmill as part of the milling process is 'forestry' as defined in section 35 of the EGCSA.

Facts

An entity operates a sawmill outside the forest where the timber was felled.

The timber is received at the sawmill, stripped of bark and cut into logs.

The green, debarked logs are moved to the timber yard and air dried for two months.

The air dried logs are then placed in a kiln for a week to complete the drying process.

After drying, the logs are removed from the kiln and milled into planks.

The planks are then processed into tongue and groove flooring, or decking, depending on the customers' requirements.

Reasons for Decision

Under subsection 53(1) of the EGCSA, an entity is entitled, subject to certain prescribed conditions, to an off-road credit if they purchase diesel fuel for a use by them that qualifies.

'Primary production' is a use that qualifies. Primary production is in turn defined in section 21 of the EGCSA as meaning, in part, forestry. 'Forestry' is then defined in section 35 of the EGCSA.

The definition of forestry in section 35 of the EGCSA covers a number of activities, the most pertinent of which is contained in paragraph 35(d) which states that forestry includes:

The milling of timber at a sawmill or chipmill that is not situated in the forest or plantation in which the timber was felled;

The meaning of the phrase 'milling of timber' has been considered a number of times by the Administrative Appeals Tribunal (AAT). It was first considered in Re Wesfi Pty Ltd v. Collector of Customs (WA) No. W84/46 (1984) 7 ALN N8 (Wesfi) where the AAT accepted the ordinary meaning of the term 'milling' as follows:

The Shorter Oxford English Dictionary (Rev. 3rd edn) gives this relevant meaning of 'milling':

the action or process of subjecting something to the operation, as corn etc. b. The treatment of a substance to material in any kind of mill; eg the operation of fulling cloth, rolling metals, crushing minerals etc.

The approach outlined by the AAT was subsequently adopted in Re T J Depiazzi and Sons v. Collector of Customs No. W92/114 AAT No. 8770 (1993) 17 AAR 557 and again in Re Brymay Forests Pty Ltd v. Collector of Customs Victoria No. V85/305 AAT No. 2496; (1985) 9 ALN N177 (Brymay) when it was determined, in part, that the use of a diesel powered front-end grab tractor to take logs from the log stack to the production line where they are milled was also milling of timber. The AAT reached this conclusion as:

... the front end grab tractor or tractors are used exclusively in relation to the saw milling operations ... Their use is necessarily incidental to the operations.

However, in Brymay the AAT also determined that, while the debarking and sawing of logs into billets constituted the milling of timber, the chopping of veneer sheets did not, as that process was a secondary treatment and not a process of primary production.

Thus, it is clear from Brymay that the milling of timber is not limited to the actual subjection of the timber to the mill, but includes activities necessarily incidental to the process of milling timber. However, it does not extend so far as to include activities more properly regarded as secondary processing.

The quoted cases were considered under the diesel fuel rebate scheme which was the precursor to the energy grants credit scheme (EGCS) and since the Explanatory Memorandum to the EGCSA states that the EGCS is to provide equivalent entitlements to those of the diesel fuel rebate scheme, the interpretation in those cases can be applied to the current situation.

In this instance, the drying of timber occurs after the logs have been debarked, but before they are milled into planks prior to being processed into tongue and groove flooring or being re-sawn into lengths of timber decking or timber boards that meet customer specifications.

The drying of timber has occurred at a saw mill and is necessarily incidental to the milling operations undertaken at the mill, and is not part of any secondary manufacturing or processing activity. Therefore, the drying of timber constitutes the 'milling of timber' and accordingly falls within the definition of forestry in section 35 of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   section 21
   section 35
   section 53
   paragraph 35(d)
   subsection 53(1)
   subsection 53(2)

Case References:
Re Wesfi Pty Ltd v. Collector of Customs (WA), No. W84/46
   (1984) 7 ALN N8

Other References:
The Shorter Oxford English Dictionary 1973, rev. 3rd edn, Oxford University Press Oxford

Keywords
EGCS forestry
EGCS milling
EGCS off-road

Business Line:  Excise

Date of publication:  4 June 2004

ISSN: 1445-2782