ATO Interpretative Decision

ATO ID 2004/738

Excise

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Issue

Is the transport of woodchips from the place where they have been chipped to a place where they will be screened to clean and sort the chips into products suitable for use in an industrial process the 'transporting, ... in a forest or plantation, of timber felled in that forest or plantation' as required by paragraph 35(c) of the definition of 'forestry' in the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

No. The transport of woodchips from the place where they have been chipped to a place where they will be screened to clean and sort the chips into products suitable for use in an industrial process is not the 'transporting, ... in a forest or plantation, of timber felled in that forest or plantation' as required by paragraph 35(c) of the definition of 'forestry' in the EGCSA.

Facts

An entity has entered into agreements to access waste timber and process it into products suitable for use in an industrial process.

The entity mills the timber into woodchips in one location, and then transports the woodchips to another location where they will be screened to clean and sort the chips into products suitable for use in an industrial process.

None of the transport occurs on public roads.

Reasons for Decision

Under subsection 53(1) of the EGCSA, an entity is entitled, subject to certain prescribed preconditions, to an off-road credit if they purchase diesel fuel for a use by them that qualifies, including 'primary production (otherwise than for the purpose of propelling a road vehicle on a public road)'.

'Primary production' is defined in section 21 of the EGCSA as meaning, in part, forestry. 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(c) which states that forestry includes:

(c)

the ... transportation ... in a forest or plantation, of timber felled in the forest or plantation; or ...

It is accepted that the entity's activities constitute 'transportation' and do not involve propelling a road vehicle on a public road. The next test that needs to be considered is whether or not the wood chips constitute 'timber' for the purposes of paragraph 35(c) of the EGCSA.

The meaning of the word 'timber' was considered by the Administrative Appeals Tribunal (AAT) for the purposes of the Diesel Fuel Rebate Scheme (DFRS) in Re T J Depiazzi and Sons and Collector of Customs NSW No. W92/114 AAT No. 8770 (1993) 17 AAR 557 (Depiazzi). The DFRS was the immediate precursor to the Energy Grants (Credits) Scheme and was administered under the Customs Act 1901 and the Excise Act 1901. The DFRS relied on a definition of 'forestry' identical to that contained in the EGCSA, so those decisions are still considered relevant.

In Depiazzi, the AAT considered whether the chipping of raw waste materials obtained from sawmills constituted the milling of timber for the purposes of the (DFRS). After chipping, some of the woodchips were blended with other materials to make potting mix. The AAT determined that any product that:

Originally was a constituent of a tree that has been felled is capable of fitting the notion of 'timber' ... throughout the course of events when it is subject to a process of further reduction in size and shape up to the point where the basic constituent material, in reduced or separated form, is subjected to a secondary process or treatment.

The AAT concluded that the raw waste materials obtained from sawmills that were to be milled at a chipmill constituted timber.

Consequently, a determination of whether a product is timber requires a careful examination of the processes it undergoes.

In this instance the timber has already been milled to produce woodchips and will undergo no further reduction in size and shape. The woodchips are being transported so that they can be screened to clean and sort the chips into products suitable for use in an industrial process. The cleaning and sizing of the wood chip into the types of products suitable for use in an industrial process is similar to the treatment of woodchips to produce fertiliser in Depiazzi as these activities occur after the milling is complete and prepare the wood chips specifically for use in secondary activities. Consequently these cleaning and sizing processes are more properly regarded as a secondary treatment or process that occurs after the milling of the timber is complete.

As the woodchips have completed the milling process, and are in a state where they are ready to undergo secondary processing, the woodchips are not 'timber' for the purposes of section 35 of the EGCSA.

Consequently, the transport of the wood chips does not constitute the 'transporting, ... in a forest or plantation, of timber felled in that forest or plantation' as required by paragraph 35(c) of the definition of 'forestry' in the EGCSA.

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

Case References:
Re T J Depiazzi and Sons and Collector of Customs NSW
   No. W92/114 AAT No. 8770
   (1993) 17 AAR 557

Related Public Rulings (including Determinations)
PGBR 2004/D2 Energy Grants: off-road credits for forestry

Keywords
EGCS forestry
EGCS off-road
EGCS forestry transportation of timber

Business Line:  Excise

Date of publication:  10 September 2004

ISSN: 1445-2782