ATO Interpretative Decision

ATO ID 2004/779

Excise

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is an entity carrying out an 'agricultural construction activity' as defined in section 25 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA) when it undertakes earthworks to establish a farm?

Decision

No. An entity is not carrying out an 'agricultural construction activity' as defined in section 25 of the EGCSA when it undertakes earthworks to establish a farm.

Facts

An entity undertakes earthworks on an area of land which is being developed for use as a farm on which a business of rearing live-stock will be carried on with a view to obtaining produce for sale. However, no farming activities have yet commenced on the property.

Reasons for Decision

Section 53 of the EGCSA provides that, subject to the conditions and restrictions specified in the Energy Grants (Credits) Regulations 2003, 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 'primary production'.

'Primary production' is defined in section 21 of the EGCSA to mean a number of activities including agriculture. 'Agriculture' is defined in section 22 of the EGCSA to mean a number of activities including an 'agricultural construction activity', which is defined in turn in section 25 of the EGCSA.

In this situation, the most pertinent activity is set out in paragraph 25(e) which states that the expression 'agricultural construction activity' means

the carrying out of earthworks for use in a core agricultural activity if the earthworks:

are carried out on the agricultural property where the core agricultural activity is carried on; and

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.

Therefore, the activities will be an 'agricultural construction activity' if the earthworks are:

•

for use in a core agricultural activity

•

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

•

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

Each test will be considered in turn.

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

The term 'core agricultural activity' is defined in section 31 of the EGCSA, 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 they are undertaken for the purpose of or for purposes that will directly benefit a business undertaken to obtain produce for sale.

In this case the earthworks are going to be used in the core agricultural activity of rearing live-stock. The rearing of live-stock will be undertaken in the course of a business with a view to obtaining produce for sale. Therefore, the first test is satisfied.

2. Are the earthworks being carried out on the agricultural property where that core agricultural activity is carried on?

The EGCSA specifically requires that the earthworks be carried out on the agricultural property where the core agricultural activity the earthworks will be used in, is carried on.

Therefore, what must firstly be determined is whether this area of land is an 'agricultural property'.

The term 'agricultural property' is not defined in the EGCSA. The issue of what constitutes an agricultural property for the purposes of the Diesel Fuel Rebate Scheme (DFRS) was considered by the Administrative Appeals Tribunal (AAT) in Raymond Cedric and Brian Richard Wallace v. CEO of Customs [1998] AATA 633 (25 June 1998); (1998) 27 AAR 430 (Wallace). As the energy grants credits scheme maintains similar entitlements to its predecessor (the DFRS), the decision in Wallace remains relevant.

Wallace is authority for the view that an agricultural property is a property on which a core agricultural activity or a mixture 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.

In this case, the property is a new property being prepared and developed to allow a core agricultural activity to be carried out on the property. As the property is not a property on which a core agricultural activity is carried out, it is not an 'agricultural property' for the purposes of the EGCSA. Therefore, the second test is not satisfied and it is unnecessary to consider the third test.

Accordingly, an entity which undertakes earthworks to establish a farm is not carrying out an 'agricultural construction activity' as defined in section 25 of the EGCSA.

Legislative References:
Energy Grants (Credits) Scheme Act 2003
   section 21
   section 22
   section 25
   paragraph 25(e)
   section 31
   section 53

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

Related ATO Interpretative Decisions
ATO ID 2003/1162
ATO ID 2004/64
ATO ID 2004/740
ATO ID 2004/741
ATO ID 2004/742
ATO ID 2004/743
ATO ID 2004/744

Keywords
EGCS agriculture
EGCS agricultural earthworks
EGCS agricultural construction activity

Business Line:  Excise

Date of publication:  24 September 2004

ISSN: 1445-2782