ATO Interpretative Decision

ATO ID 2004/99

Excise

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Issue

Is the keeping of cattle in a feedlot, where cattle are kept for research and commercial reasons, 'agriculture' as defined in subsection 164(7) of the Customs Act 1901 for the purposes of the diesel fuel rebate scheme?

Decision

Yes. The keeping of cattle in a feedlot, where cattle are kept for research and commercial reasons, is 'agriculture' as defined in subsection 164(7) of the Customs Act for the purposes of the diesel fuel rebate scheme.

Facts

A not for profit research organisation operates a feedlot.

The feedlot operates basically as would any normal feedlot, except that equipment has been set up to monitor the feed consumed by selected cattle.

The organisation undertakes a range of activities that provide research data and standard commercial feedlot services. All clients providing cattle to the feedlot are engaged in the beef cattle raising industry.

The research activities generally relate to the care and controlled feeding of cattle in a way that allows data to be obtained for analysis off site. The organisation also performs research on meat samples taken from selected cattle after slaughter.

The majority of the cattle cared for by the organisation are owned by various pastoral companies. The ownership of the cattle remains with the pastoral companies. The organisation charges the pastoral companies commercial rates for the agistment, feeding and other costs associated with the operation of the feedlot.

The cattle are slaughtered and sold once they have achieved the required weight gain, and the proceeds of the sale are paid to the particular pastoral company in the group that owned the cattle.

The organisation also provides standard feedlot commercial services to clients. These cattle are generally placed in the feedlot to attain specific weights for sale at market that will maximise profit to the commercial client.

The duration of the cattle's stay in the feedlot depends on whether they are being held for experimental or commercial reasons, and can vary between 70 and 300 days.

Reasons for Decision

Under the diesel fuel rebate scheme, a diesel fuel rebate is payable to a person who purchases diesel fuel for use by them in certain defined activities, including 'agriculture'.

For the purposes of the diesel fuel rebate scheme, 'agriculture' is defined in subsection 164(7) of the Customs Act to mean various activities of which the most relevant to the client's circumstances is the rearing of livestock.

The definition of 'agriculture' also imposes an overriding test that requires most of the activities listed in the definition of agriculture, including the rearing of livestock, to be carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain profit for sale.

Given the above requirements, the client's activities will fall within the definition of 'agriculture' in subsection 164(7) of the Customs Act if they can be considered:

(a)

'rearing of livestock'; and

(b)

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

Are the activities 'rearing of livestock'?

'Rear' is defined in the Australian Oxford Dictionary (1999), Oxford University Press, Melbourne as

a.

bring up and educate (children)

b.

breed and care for (animals).

The term 'live-stock' is defined in section 164(7) of the Customs Act as including 'any animal reared for the production of food, fibres, skins, fur or feathers or for its use in the farming of land'.

In an agricultural context, we consider that the rearing of livestock means the care and support of the livestock until the purpose for which the animals are reared is fulfilled.

If livestock are reared for sale or slaughter, the relevant case law has consistently taken the view that rearing ends at the point at which the livestock leave the agricultural property (see Re National Australian Railways Commission v. Collector of Customs, South Australia (1985) 8 FCR 264; Impast Pty Ltd and Collector of Customs (1992) No. W91/290 AAT No. 8355; Re French Island Barge Pty Ltd and: Collector of Customs (1993) No.V92/255 AAT No 8625).

Rearing of livestock includes all activities reasonably required to provide this care and support, in accordance with accepted commercial animal management practices. More specifically the Federal Court in Collector of Customs v. Reg Russell and Sons Pty Ltd No. WAG 95 of 1994 FED No. 421/95 has accepted that it includes the care of livestock at feedlots to allow them to gain body weight preparatory to slaughter.

It is accepted that the cattle in the feedlot are livestock, and that feeding and care provided to all the cattle, regardless of whether they are held in part for research purposes, occurs to allow the cattle to gain body weight, usually prior to slaughter. Accordingly, the non-profit body's activities are considered 'rearing of livestock'.

Are the activities carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale?

No produce is sold by the non-profit body itself (except as agent for the pastoral companies). Therefore, the non-profit body's activities are not carried on for the purposes of a business undertaken to obtain produce for sale.

However, the activity may still fall within the definition of 'agriculture' if it is undertaken for purposes that will directly benefit a business undertaken to obtain produce for sale. An activity will directly benefit a business undertaken to obtain produce for sale if there is a close and immediate benefit (that is, a positive effect) to the business arising from the activity in question.

The non-profit body conducts its rearing of livestock activities for a number of reasons, including to obtain data that will allow it to undertake research. However, the legislation does not require that the only purpose of undertaking a particular activity is to directly benefit a business undertaken to obtain produce for sale.

The animals that are being reared at the feedlot are owned by businesses undertaken to obtain produce for sale. These businesses obtain a close and immediate benefit from the non-profit body's activities. Most commonly this benefit is in the form of the increased sale value of an animal that has been held at the feedlot, but in certain circumstances, it may also include the return of an animal in good condition.

Consequently the rearing of livestock at the feedlot is carried out for the purposes of, or purposes that will directly benefit a business, or businesses, undertaken to obtain produce for sale.

Conclusion

The non-profit body is carrying on activities that constitute the rearing of livestock, and its activities are carried on for purposes that will directly benefit a business undertaken to obtain produce for sale. Therefore the keeping of cattle by the non-profit body in a feedlot amounts to agriculture as defined in subsection 164(7) of the Customs Act for the purposes of the diesel fuel rebate scheme.

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

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

Other References:
Australian Oxford Dictionary (1999), Oxford University Press, Melbourne

Keywords
DFRS agriculture
Diesel fuel rebate scheme

Business Line:  Excise

Date of publication:  6 February 2004

ISSN: 1445-2782