ATO Interpretative Decision

ATO ID 2004/784

Excise

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Issue

Are earthworks carried out on a disused farm to make it suitable for a new core agricultural activity, 'agriculture' as defined in subsection 164(7) of the Customs Act 1901, for the purposes of the Diesel Fuel Rebate Scheme (DFRS)?

Decision

No. Earthworks carried out on a disused farm to make it suitable for a new core agricultural activity, are not 'agriculture' as defined in subsection 164(7) of the Customs Act, for the purposes of the DFRS.

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

Under subsection 78A(1) of the Excise Act 1901 and subsection 164(1) of the Customs Act, a diesel fuel rebate is payable to a person who purchases diesel fuel for use by them in 'agriculture'. 'Agriculture' is defined for the purposes of both Acts in subsection 164(7) of the Customs Act to mean (subject to certain exclusions) various activities including:

(r)

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

Subsection 164(7) of the Customs Act also specifies that for an activity to qualify as agriculture, it must be carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

Therefore, the earthworks will be agriculture for the purposes of paragraph 164(7)(r) of the Customs Act if they are:

•

for use in a core agricultural activity

•

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

•

carried out by the person who carried on the core agricultural activity or a person contracted by that person, and

•

undertaken for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.

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 subsection 164(7) of the Customs Act 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 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 earthworks will 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 Customs Act 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.

Therefore, 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 Customs Act. The issue of what constitutes an agricultural property for the purposes of the 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).

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 carried out is a disused agricultural property, on which agricultural activities have been carried out in the past, but not for some time.

Therefore, as the entity is undertaking the earthworks in order to commence a core agricultural activity and the land has not been used for agricultural activities for some time prior to the work, the property is not an agricultural property at the time the earthworks are undertaken. As this second test is not met, the remaining two tests need not be considered.

Accordingly, earthworks carried out on a disused farm to make it suitable for a new core agricultural activity, are not 'agriculture' as defined in subsection 164(7) of the Customs Act, for the purposes of the DFRS.

Legislative References:
Customs Act 1901
   subsection 164(1)
   subsection 164(7)

Case References:
Australian National Railways Commission v. Collector of Customs, SA
   (1985) 8 FCR 264

Keywords
Diesel Fuel Rebate Scheme
DFRS agriculture

Business Line:  Excise

Date of publication:  24 September 2004

ISSN: 1445-2782