ATO Interpretative Decision

ATO ID 2004/470 (Withdrawn)

Excise

• This ATO ID is withdrawn as it has been superseded by Product Grants and Benefits Ruling PGBR 2005/3
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the storage of grain on a farm, as part of a grain storage business, a 'sundry agricultural activity' under section 27 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

Yes. The storage of grain on a farm, as part of a grain storage business, is a 'sundry agricultural activity' under section 27 of the EGCSA.

Facts

An entity conducts a business of growing grain on its agricultural property. The grain is stored on the agricultural property. The entity also uses the grain storage facilities on its farm to store grain for other farmers in return for a fee. The other farmers are also conducting grain growing businesses.

The entity uses diesel fuel to power equipment that pumps both their own grain, and grain from other farmers, into the grain storage facilities.

The area of the farm that is used for the grain storage activity is very small relative to the overall size of the farm.

Reasons for Decision

Section 53 of the EGCSA provides that, subject to the conditions and restrictions specified in the regulations, 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 'agriculture'. 'Agriculture' is defined in section 22 of the EGCSA to include, subject to certain limitations, a 'sundry agricultural activity', which is defined in turn in section 27 of the EGCSA.

The most pertinent activity in section 27 of the EGCSA is set out in paragraph 27(f) of the EGCSA, which states that the expression 'sundry agricultural activity' includes:

(f)

the storage of produce of a core agricultural activity on an agricultural property where a core agricultural activity is carried on.

To qualify as a sundry agricultural activity under paragraph 27(f) of the EGCSA, there are three requirements that must be satisfied:

1.

The entity must be storing produce

2.

The produce must result from a core agricultural activity

3.

The storage must take place on an agricultural property where a core agricultural activity is carried on

Each of these activities will be examined in turn.

1. The entity must be storing produce.

The entity is using diesel fuel to power equipment that pumps grain into the silos where it will be stored. The term storage is not defined in the EGCSA and therefore takes on its ordinary meaning. The definition of storage in The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines storage as both 'the act of storing' and 'the state or fact of being stored'. The entities activities are clearly the act of storing the grain and therefore the entity is storing produce.

2. The produce must result from a core agricultural activity.

The term 'core agricultural activity' is defined in section 31 of the EGCSA as meaning a number of activities including the cultivation or gathering in of crops when the activity is carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

Both the entity and the farmers who pay the entity to store their grain are conducting the core agricultural activity of cultivation or gathering in of crops. Therefore the produce that is being stored on the property is the produce of a core agricultural activity.

3. The storage must take place on an agricultural property where a core agricultural activity is carried on

The use of the word 'an' rather than 'the' means that it is not necessary that the produce that is being stored must have been grown on the property where the storage facilities are located. It is sufficient that the storage takes place on an agricultural property where a core agricultural activity is carried on.

The term 'agricultural property' is not defined in the EGCSA and therefore takes on its ordinary meaning.

The key issue to be determined is whether the property on which the entity's crops are grown and the property on which the entity stores grain are truly one property or whether they are more properly regarded as two separate properties (an agricultural property and a property set aside for grain storage activities).

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) The diesel fuel rebate scheme was the immediate precursor to the Energy Grants (Credits) Scheme, and administered under the Customs Act 1901 which contained a definition of 'agriculture' that also required certain activities to be carried out on an agricultural property.

In Wallace, the applicant was contracted by a sanctuary to carry out certain earthworks associated with the construction of the first stage of a wetland. Approximately 35-40 hectares of the sanctuary were used to grow gum trees, the leaves of which were sold as koala fodder. The applicant claimed a rebate under the previous off-road scheme, in respect of diesel fuel used in earthworks. To be eligible under the previous off-road scheme the activities had to be conducted on an agricultural property.

The AAT held that the growing of eucalyptus leaves was only a small part of the activities carried out within the sanctuary. Therefore, while the cultivation of eucalyptus leaves constituted a core agricultural activity, it was not carried out on an agricultural property.

Deputy President Forgie SA said:

Taking into account the limitations in interpretation imposed by the Customs Act, I have concluded that the expression 'agricultural property' means a property on which there are carried out the activities of the cultivation of soil, the growing and gathering of crops or the rearing of livestock or of a mixture of more than one of these activities provided that those activities are carried out for the purpose of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

From Wallace, it is clear that when considering whether a property is an agricultural property, one should determine whether the property, when viewed as a whole, is an agricultural property. In Wallace, only a small area of the property was used for a core agricultural activity, and the property as a whole was therefore not considered to constitute an agricultural property.

In this instance, the entity is only using a small part of its property for grain storage activities. The rest of the property is used for the core agricultural activity of cultivation or gathering in or crops. Therefore, applying the logic in Wallace, the property, when viewed as a whole, is an agricultural property where a core agricultural activity is carried on.

As all the requirements of paragraph 27(f) of the EGCSA are satisfied, the storage of grain on a farm is a 'sundry agricultural activity' under section 27 of the EGCSA notwithstanding that the grain was grown on another farm.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   section 22
   section 31
   section 27
   paragraph 27(f)
   section 53

Case References:
Cedric and Brian Richard Wallace v. CEO of Customs
   [1998] AATA 633 (25 June 1998)
   (1998) 27 AAR 430

Other References:
The Macquarie Library Pty Ltd, NSW , 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW

Keywords
EGCS agriculture
EGCS off-road
EGCS sundry agricultural activity
EGCS storage

Business Line:  Excise

Date of publication:  11 June 2004

ISSN: 1445-2782