ATO Interpretative Decision

ATO ID 2004/787 (Withdrawn)

Excise

• This ATO ID is withdrawn from the database because it contains a view in respect of the diesel fuel rebate provisions of the Excise Act 1901 and or the Customs Act 1901 that were repealed with effect from 1 July 2003. Despite its withdrawal from the database, this ATO ID continues to be a precedential view in respect of decisions for fuel purchased before 1 July 2003.
  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 core agricultural activity, 'agriculture' as defined in subsection 164(7) of the Customs Act 1901, for the purposes of the Diesel Fuel Rebate Scheme (DFRS)?

Decision

Yes. Earthworks carried out shortly after an entity has ceased cultivating crops, in order to prepare the property for a new core agricultural activity are 'agriculture' as defined in subsection 164(7) of the Customs Act, for the purposes of the DFRS.

Facts

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

The entity ceases growing crops and shortly after carries out earthworks to prepare 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 preparation of the property, the entity engages an earthmoving contractor to undertake earthworks to enable the new activity to commence.

Reasons for Decision

Under subsection 78A(1) of the Excise Act 1901 and subsection 164(1) of the Customs Act, a diesel fuel rebate is payable to a person who purchases diesel fuel for use by them in 'agriculture'.

'Agriculture' is defined for the purposes of both Acts, in subsection 164(7) of the Customs Act. 'Agriculture' means (subject to certain exclusions) various activities including:

(r)

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

For an activity to meet the definition of agriculture in subsection 164(7) of the Customs Act, it is also necessary that the activity be carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

Therefore, the earthworks will be agriculture for the purposes of subsection 164(7) of the Customs Act if they are:

•

for use in a core agricultural activity

•

carried out on the agricultural property where that core agricultural activity is carried on

•

carried out by the person who carries on the core agricultural activity or a person contracted by that person, and

•

carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

Each test will be considered in turn.

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

'Core agricultural activity' is defined in subsection 164(7) of the Customs Act, 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 carried out for the purposes 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 Customs Act 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 rear live-stock 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.

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 Customs Act. 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 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.

4. Are the earthworks undertaken for the purposes of a business undertaken to obtain produce for sale?

We have already ascertained that the earthworks are for use in a core agricultural activity. To be a core agricultural activity, the earthworks must be undertaken for the purposes of a business undertaken to obtain produce for sale. Therefore, it is accepted that this test is met.

Accordingly, earthworks carried out shortly after an entity has ceased cultivating crops, in order to prepare the property for a new core agricultural activity are 'agriculture' as defined in subsection 164(7) of the Customs Act, for the purposes of the DFRS.

Legislative References:
Customs Act 1901
   subsection 164(1)
   subsection 164(7)

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

Keywords
Diesel Fuel Rebate Scheme
DFRS agriculture

Business Line:  Excise

Date of publication:  24 September 2004

ISSN: 1445-2782