ATO Interpretative Decision

ATO ID 2004/621 (Withdrawn)

Excise

• This ATO ID is withdrawn as it is superseded by Product Grants and Benefits Ruling PGBR 2005/1.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 making of a road in a new plantation 'forestry' as defined in section 35 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

No. The making of a road in a new plantation is not 'forestry' as defined in section 35 of the EGCSA.

Facts

An entity has been contracted by a State forestry organisation to make roads in a new plantation being developed by the forestry organisation, in accordance with the relevant State Forestry Code, for the purposes of timber production.

The new plantation is being developed on what was previously farmland. In accordance with the relevant state legislation, the land has been authorised as a plantation and there is a forestry management plan in place for the land.

Although no trees have yet been planted and the plantation contains no standing timber, activities to prepare the land, including road making, are actively being carried on. However, activities such as ploughing, fertilising or conditioning the soil ready for the planting of trees are not being carried on.

The road being made is being constructed primarily and principally for the purpose of providing access to an area to enable trees to be planted. The road structure being developed will also allow the planted trees to be tended, and eventually felled and removed from the plantation.

Reasons for Decision

Subsection 53(1) of the EGCSA provides that an entity is entitled, subject to certain conditions, to an off-road credit if they purchase diesel fuel for a use by them that qualifies. Subsection 53(2) of the EGCSA states that use in 'primary production' (otherwise than for the purpose of propelling a road vehicle on a public road) is a use that qualifies.

The term 'primary production' includes 'forestry', as well as 'agriculture' and 'fishing operations'. 'Forestry' is relevantly defined in section 35 of the EGCSA as:

The expression forestry means:

(a)

the planting or tending, in a forest or plantation of trees intended for felling; or

(b)

the thinning or felling, in a forest or plantation, of standing timber

and includes:

(c)

the transporting, milling or processing, in a forest or plantation, of timber felled in the forest or plantation; or ...

(f)

the making and maintaining in a forest or plantation referred to in paragraph (a) or (b) of a road that is integral to the activities referred to in paragraph (a), (b) or (c).

Therefore, the making of roads will be 'forestry' as defined in section 35 of the EGCSA if:

(a)

The road being constructed is in a forest or plantation:

(i)

in which trees intended for felling are planted or tended; or

(ii)

in which standing timber is thinned or felled; and

(b)

The road is integral to the activities of:

(i)

planting or tending of trees intended for felling; or

(ii)

the thinning or felling of standing timber in that forest or plantation; or

(iii)

the transporting, milling or processing, in the forest or plantation, of timber felled in that forest or plantation.

The first test that must be met is that the road is being made in a forest or plantation where trees intended for felling are planted or tended, or in which standing timber is thinned or felled.

The term 'plantation' is not defined in the legislation, however, The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines 'plantation' as:

1.

a farm or estate, especially in a tropical or subtropical country, on which cotton, tobacco, coffee, sugar or the like is cultivated, usually by resident labourers.

2.

a group of planted trees or plants.

This ordinary meaning of 'plantation' needs to be understood in the context of subsection 53(2) and section 35 of the EGCSA.

Although the definition of forestry in section 35 of the EGCSA, unlike the definitions of 'agriculture' and 'fishing operations' has no specific requirement that the activities outlined in the section be carried on for the purposes of a business, eligibility for off-road credits is only available for primary production activities (including forestry) that are conducted as a commercial or business enterprise.

This view is supported by the Explanatory Memorandum to the Diesel Fuel Taxes Legislation Amendment Bill (No. 1) 1982. As the diesel fuel rebate scheme was the precursor to the Energy Grants Credits Scheme, and contained an identical definition of the term forestry, this Explanatory Memorandum is relevant when interpreting the EGCSA.

The explanatory memorandum states that the package was designed to 'introduce... a new system providing for rebates of duty paid on diesel fuel used for "off-road" purposes by persons engaged in the agriculture, mining, forestry and fishing industries'. Hence, the measures were intended to encourage the primary industries to which they applied.

The Macquarie Dictionary, 2001 defines 'primary industry' as:

any industry such as dairy farming, forestry, mining etc., which is involved in the growing, producing, extracting, etc., of natural resources.

It in turn defines 'industry' as:

1.

a particular branch of trade or manufacture

2.

any large-scale business activity: the tourist industry

3.

manufacture or trade as a whole: the growth of industry in underdeveloped countries.

The references to 'industries' in the Explanatory Memorandum confirm a legislative intent to confine eligibility for the diesel fuel rebate under the previous off-road scheme to persons that engage in primary production as a commercial or business enterprise.

As stated above, the principles enunciated in relation to the former diesel fuel rebate scheme are equally applicable to the EGCSA.

This view is supported by comments made by the Administrative Appeals Tribunal (AAT) in Re City of Nunawading and Comptroller-General of Customs No. V93/540 AAT No. 9758; (1994) 36 ALD 628. In that case, the AAT was dealing with the meanings of 'agriculture' and 'horticulture' in subsection 164(7) of the Customs Act 1901, prior to the 1995 amendments to that Act. In relation to horticulture, the AAT, after examining the context in which the word was used, and its ordinary and statutory meaning, concluded:

Looking at the context, we consider that the word "horticulture", when used in section 164, is not limited to those activities specified in paragraphs (a), (b) and (c) of the definition but that to come within the meaning of horticulture in the Act, an activity must relate in some way to an aspect of primary production conducted as a commercial or business enterprise.

Having regard to forestry being an aspect of primary production, a similar approach is appropriate to the activities that are within the meaning of forestry in section 35 of the EGCSA. Those activities must be carried out as part of a commercial or business enterprise to obtain timber as primary produce.

Consequently, a 'plantation' for the purposes of section 35 of the EGCSA refers to a large group of trees that have been planted with the intention of harvesting timber.

However, an area of land may also become recognisable as a 'plantation' for the purposes of section 35 of the EGCSA before the trees have been planted. This will be the case where:

•

the land has been clearly set aside for the planting and tending of trees with the intention of harvesting timber

•

the land has been authorised as a plantation under the relevant state legislation and there is a forest management plan in place for managing the plantation in accordance with the relevant State Forestry Code; and

•

activities associated with the planting and tending of trees are being undertaken by the entity managing the land in accordance with a forestry management plan under the relevant State Forestry Code.

In this instance, all these arrangements are in place, so it can be said that the road construction is occurring in a plantation.

What remains to be determined is if this is a plantation in which trees intended for felling are planted or tended, or in which standing timber is thinned or felled.

The word 'planting' is not defined in the EGCSA and therefore takes its common meaning. The Macquarie Dictionary, 2001, defines the verb 'plant' as:

to put or set in the ground, as seeds, young trees, etc

In this instance, activities such as ploughing, fertilising or conditioning the soil ready for the planting of trees or the physical placing of trees in the prepared soil are not yet occurring. Neither are the activities of thinning or felling of standing timber currently being carried out. Consequently, the plantation cannot be said to be a plantation in which trees intended for felling are planted or tended, or in which standing timber is thinned or felled.

As the road is not being made in a plantation where trees intended for felling are planted and tended, or in which standing timber is thinned or felled, the making of a road in a new plantation is not 'forestry' as defined in section 35 of the EGCSA.

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

Case References:
Re City of Nunawading and Comptroller-General of Customs
    No. V93/540 AAT No. 9758
   (1994) 36 ALD 628

Related ATO Interpretative Decisions
ATO ID 2004/332
ATO ID 2004/436

Other References:
The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW
Explanatory Memorandum to the Diesel Fuel Taxes Legislation Amendment Bill (No. 1) 1982

Keywords
EGCS forest
EGCS forestry
EGCS forestry road making and maintenance
EGCS off-road
EGCS plantation
EGCS planting or tending
EGCS standing timber
EGCS thinning or felling
Energy grants (credits) scheme

Business Line:  Excise

Date of publication:  30 July 2004

ISSN: 1445-2782