ATO Interpretative Decision

ATO ID 2004/786 (Withdrawn)

Excise

Diesel Fuel Rebate Scheme: agriculture - earthworks - change in ownership of agricultural property
FOI status: may be released
Status of this decision: Decision Withdrawn 8 January 2010
CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Are earthworks carried out on a farm, after its purchase, with the intention of continuing to operate it as a farm, 'agriculture' as defined in subsection 164(7) of the Customs Act 1901, for the purposes of the Diesel Fuel Rebate Scheme (DFRS)?

Decision

Yes. Earthworks carried out on a farm, after its purchase, with the intention of continuing to operate it as a farm, are 'agriculture' as defined in subsection 164(7) of the Customs Act, for the purposes of the DFRS.

Facts

An entity purchases a farm on which the cultivation of crops was carried on by the previous owner.

No crop was growing on the farm at the time of the purchase by the entity. However, the entity intends to sow a crop (the same as was grown prior to the purchase) as soon as the land is prepared.

The land has not remained fallow for any period of time. The entity is merely purchasing the farm to continue a business of cultivating crops for sale.

The entity has contracted an earthmoving contractor to carry out earthworks necessary to prepare the property for its continuing use as a farm.

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 be '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 activities will be earthworks for the purposes of subsection 164(7) 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 carries 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'?

'Core agricultural activity' is defined in subsection 164(7) of the Customs Act, 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 that 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 crop growing, which will be undertaken for the purpose of a business undertaken to obtain produce for sale. The fact that the property has changed hands is irrelevant. 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.

However, what must firstly be determined is whether this area of land 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 change in ownership of the property does not alter the fact that the property where the earthworks are being carried out is an 'agricultural property'. The property is a property on which agricultural activities have been carried on and will continue to be carried on for the purpose of a business undertaken to obtain produce for sale. The land has not remained fallow for any period of time. The entity is merely purchasing the property to continue operating it as it was previously, with the same core agricultural activity being carried on.

Therefore, the second test has been satisfied.

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

As the earthworks are being carried out by a person contracted to the farmer who is carrying on the core agricultural activity, this test is also met.

4. Are the earthworks undertaken for the purposes of a business undertaken to obtain produce for sale?

We have already ascertained that the earthworks are for use in a core agricultural activity. To be a core agricultural activity, the earthworks must be carried out for the purposes of a business undertaken to obtain produce for sale. Therefore it is accepted that this test is met.

Accordingly, earthworks carried out on a farm, after its purchase, with the intention of continuing to operate it as a farm, are 'agriculture' as defined in subsection 164(7) of the Customs Act, for the purposes of the DFRS.

Date of decision:  23 July 2004

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

Excise Act 1901
   subsection 78A(1)

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 2004/779
ATO ID 2004/780

Keywords
Diesel Fuel Rebate Scheme
DFRS agriculture

Business Line:  Excise

Date of publication:  24 September 2004

ISSN: 1445-2782

history
  Date: Version:
  23 July 2004 Original statement
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