ATO Interpretative Decision

ATO ID 2004/783

Excise

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

Issue

Is an entity that undertakes earthworks on a disused farm to make it suitable for a new core agricultural activity, carrying out an 'agricultural construction activity' as defined in section 25 of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?

Decision

No. An entity that undertakes earthworks on a disused farm to make it suitable for a new core agricultural activity is not carrying out an 'agricultural construction activity' as defined in section 25 of the EGCSA.

Facts

An entity purchases a disused farm on which no agricultural activities have been carried on for some time.

The entity intends to utilise the property's existing infrastructure to operate it as a viticultural property, which is not the core agricultural activity it was originally used for. No agricultural activities are currently being carried out on the property.

The entity has contracted an earthmoving contractor to carry out earthworks necessary to prepare the property for viticultural activities.

Reasons for Decision

Section 53 of the EGCSA provides that, subject to the conditions and restrictions specified in the Energy Grants (Credits) Scheme 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'. The term '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.

In this situation, the most pertinent activity is 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:

(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.

Therefore, the activities will be an 'agricultural construction activity' for the purposes of section 25 of the EGCSA 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 carried 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 to mean 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 to be used in a core agricultural activity, namely viticulture, which 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 EGCSA 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.

However, what must firstly be determined is whether the land where the earthworks are undertaken 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 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.

The area of land where the earthworks are being carried on is a disused agricultural property, on which agricultural activities have been carried out, but have not been for sometime.

Therefore, as the entity is undertaking the earthworks in order to commence a core agricultural activity and the land had been disused for some time prior to the work, the property is not an agricultural property at the time the earthworks are undertaken.

Accordingly, earthworks undertaken on a disused farm to make it suitable for a new core agricultural activity do not constitute 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

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