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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your private ruling

Authorisation Number: 1012318684674

Ruling

Subject: Fuel tax credits; rehabilitation of a quarry site

Question 1

Are you entitled to fuel tax credits at the full rate for diesel you acquire and use in your plant and equipment to restore a quarry site to agricultural land for the period 1 July 2011 to 30 June 2012?

Answer

No

Question 2

Are you entitled to fuel tax credits at the half rate for diesel you acquire and use in your plant and equipment to restore a quarry site to agricultural land for the period 1 July 2011 to 30 June 2012?

Answer

Yes

Question 3

Are you entitled to fuel tax credits at the full rate less the amount of the carbon reduction for diesel you acquire and use in your plant and equipment to restore a quarry site to agricultural land for the period 1 July 2012 to 30 June 2013?

Answer

Yes

This ruling applies for the following period:

2011-12 income period

2012-13 income period

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You are registered for goods and services tax (GST).

You are registered for fuel tax credits.

You are currently engaged in restoring an exhausted quarry to land to be used for agricultural purposes.

You have stated it is a requirement under state law that exhausted quarry sites be rehabilitated so they are restored to their previous function, in this case returning it back to a farming property.

To achieve this you use various plant and equipment including dump trucks, excavators, screening plant, front end loaders and bulldozers.

You:

All activities are performed on site.

Diesel is purchased on account from a fuel distributor who transports it to the site in portable tanks.

The vehicles and equipment fill up directly from the bulk tanks.

You do not engage contractors - only your employees use the fuel.

While you claim fuel tax credits for both on and off-road activities, the question at issue for this private ruling relates to whether the above activities are claimable as a specified off-road activity, that is, as agriculture.

Relevant legislative provisions

Energy Grants (Credits) Scheme Act 2003 section 11

Energy Grants (Credits) Scheme Act 2003 subsection 11(1),

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(b)

Energy Grants (Credits) Scheme Act 2003 subparagraph 11(1)(b)(i)

Energy Grants (Credits) Scheme Act 2003 subparagraph 11(1)(b)(ii)

Energy Grants (Credits) Scheme Act 2003 paragraph 11(1)(d)

Energy Grants (Credits) Scheme Act 2003 subsection 11(2),

Energy Grants (Credits) Scheme Act 2003 paragraph 11(2)(a)

Energy Grants (Credits) Scheme Act 2003 section 13,

Energy Grants (Credits) Scheme Act 2003 section 20,

Energy Grants (Credits) Scheme Act 2003 paragraph 20(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 20(b)

Energy Grants (Credits) Scheme Act 2003 section 21

Energy Grants (Credits) Scheme Act 2003 section 22

Energy Grants (Credits) Scheme Act 2003 subsection 22(1)

Energy Grants (Credits) Scheme Act 2003 paragraph 22 (1)(a)

Energy Grants (Credits) Scheme Act 2003 paragraph 22 (1)(b)

Energy Grants (Credits) Scheme Act 2003 paragraph 22 (1)(c)

Energy Grants (Credits) Scheme Act 2003 paragraph 22 (1)(d)

Energy Grants (Credits) Scheme Act 2003 paragraph 22 (1)(g)

Energy Grants (Credits) Scheme Act 2003 section 25

Energy Grants (Credits) Scheme Act 2003 paragraph 25(e)

Energy Grants (Credits) Scheme Act 2003 section 53

Fuel Tax Act 2006 section 41-5

Fuel Tax Act 2006 subdivision 41-B

Fuel Tax Act 2006 section 43-5

Fuel Tax Act 2006 subsection 43-5(1)

Fuel Tax Act 2006 section 43-8

Fuel Tax Act 2006 subsection 43-8(4),

Fuel Tax Act 2006 subparagraph 43-8(4)(b)(i),

Fuel Tax Act 2006 section 43-15

Fuel Tax Act 2006 subsection 43-15(1),

Fuel Tax Act 2006 subsection 43-15(2),

Fuel Tax Act 2006 subsection 43-30

Fuel Tax Act 2006 paragraph 43-30(e)

Fuel Tax (Consequential and Transitional Provisions) Act 2006 Division 2 of Part 3 of Schedule 3,

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(5)

Fuel Tax (Consequential and Transitional Provisions) Act 2006 subitem 11(6).

Reasons for decision

Section 41-5 of the Fuel Tax Act 2006 (FTA) provides that you are entitled to a fuel tax credit for taxable fuel that you acquire in Australia to the extent you do so for use in carrying on your enterprise, if you are registered for GST.

However, this entitlement is affected by Division 2 of Part 3 of Schedule 3 to the Fuel Tax (Consequential and Transitional Provisions) Act 2006 (FTCTPA) which operates to restrict this entitlement to specific activities for fuel purchased between 1 July 2008 and 30 June 2012.

Full rate of fuel tax credits

Subitem 11(5) of Schedule 3 to the FTCTPA provides that you are entitled to a fuel tax credit if you would have been entitled to an off-road credit under the Energy Grants (Credits) Scheme Act 2003 (EGCSA). Further, it provides that references in Part 4 of the EGCSA to 'off-road diesel fuel' were instead references to the fuel.

Where you are entitled to an off-road credit for the above period you will be entitled to claim fuel tax credits at the full rate, that is, 38.143 cents per litre (cpl).

Section 53 of the EGCSA provides that you are entitled to an off-road credit if you purchase diesel fuel for a use by you use in mining operations or in primary production are uses that qualify (otherwise than for the purpose of propelling any vehicle on a public road).

Mining operations

The expression 'mining operations' is defined in subsection 11(1) of the EGCSA as:

Per section 13 of the EGCSA, the expression 'mining rehabilitation activity', broadly means the rehabilitation of a place affected by a mining operation referred to in paragraph (a) or (b) of subsection 11(1) of the EGCSA.

Paragraph 11(2)(a) of the EGCSA specifically excludes quarrying or dredging from the definition of 'mining operations' to the extent that:

The term 'minerals' is defined at section 20 of the EGCSA, which states:

You are undertaking the rehabilitation of a quarry site for its intended future use as an agricultural property.

As discussed above, the term 'minerals' does not extend to all materials. Therefore, as 'mining operations' requires the exploration, prospecting and/or extraction of minerals, it is not correct to describe the quarry site as a place where 'mining operations' were carried on for the purposes of the EGCSA.

In addition, quarrying for materials for use in building, road making, landscaping or construction is excluded from the definition of 'mining operations'. It is commonly accepted that the material extracted at the quarry is primarily used in the construction of roads, buildings and other such developments.

Whilst the work you are performing may be generally considered a rehabilitation activity, it cannot be correctly classified as a 'mining rehabilitation activity', for the purposes of fuel tax credits, as the site was not previously used for 'mining operations' as defined by the EGCSA.

As such, your activities are not 'mining operations' for the purposes of section 11 of the EGCSA.

Primary production - agriculture

The expression 'primary production' includes 'agriculture' per section 21 of the EGCSA.

Subsection 22(1) of the EGCSA provides that the expression 'agriculture' means:

Subsection 22(2) of the EGCSA states that an activity is not agriculture, 'unless the activity is carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale.'

Paragraph 116 of Fuel Tax Ruling FTR 2006/1 Fuel tax: fuel tax credits for taxable fuel acquired or manufactured in, or imported into Australia for use in carrying on an enterprise involving 'agriculture' as defined in section 22 of the Energy Grants (Credit) Scheme Act 2003 (FTR 2006/1) explains that an activity will be considered to 'directly benefit a business undertaken to obtain produce for sale' if there is a close and immediate positive benefit to the business resulting from the activity in question.

The expression 'cultivation of the soil' in paragraph 22(1)(a) of the EGCSA means the preparation of the soil for sowing crops or pasture. Activities that constitute 'cultivation of the soil' include but are not limited to:

Further, it also includes the felling of trees, clearing of scrub, removal of stones and other actions undertaken in land clearing immediately prior to the ploughing of the soil for the purposes of establishing a farm. However, the establishment of a farm must be for the purposes of 'a business to obtain produce for sale'.

The activities you are undertaking in the process of restoring the quarry site as land that can be used for agricultural purposes may be considered to be 'the cultivation of soil' under normal principles.

However, the activities you are performing will not have a sufficiently close or immediate positive benefit to a business undertaken to obtain produce for sale. This is so because there is not currently an agricultural business in operation on the site, and the motivation for completing the work is driven by a legal requirement to rehabilitate the land rather than for an immediate agricultural purpose.

Similarly, paragraph 25(e) of the EGCSA provides that the carrying out of earthworks for use in a core agricultural activity will be considered an agricultural construction activity, that is agriculture but only if the earthworks are for use in a core agricultural activity and carried out on an agricultural property where the core agricultural activity is carried on amongst other requirements.

As your activities are neither for use in a core agricultural activity or carried out on what is currently an agricultural property you are not undertaking an agricultural activity for the purposes of section 25 of the EGCSA.

Summary

Your activities are not classified as mining operations under section 11 or agriculture under sections 22 or 25 for the purposes of the EGCSA.

As such you are not entitled to an off-road credit under section 53 of the EGCSA and accordingly you do not satisfy subitem 11(5) of the FTCTPA.

Therefore, you are not entitled to fuel tax credits at the full rate for diesel you acquire and use in your plant and equipment to restore a quarry site to agricultural land for the period 1 July 2011 to 30 June 2012.

Half rate

Subitem 11(6) of Schedule 3 to the FTCTPA provides that, from 1 July 2008, you are entitled to a fuel tax credit under section 41-5 of the FTA even if you would not have been entitled to an on-road or an off-road credit under the EGCSA. However, the amount of the credit is half of the amount of the full rate.

This provision is subject to the disentitlement rules of subdivision 41-B of the FTA, which disallows a fuel tax credit:

You are registered for GST, acquire taxable fuel for use in carrying on your enterprise and were not previously entitled to a fuel tax credit under subitem 11(5) of the FTCTPA for the activities described above.

As such, you are entitled to fuel tax credits at the half rate for the diesel fuel you acquire and use in your plant and equipment to restore a quarry site to agricultural land for the period 1 July 2011 to 30 June 2012. The half rate is 19.0715 cpl.

Period 1 July 2012 to 30 June 2013

From 1 July 2012 the previous entitlement provisions of the EGCSA provided for under Part 3 of Schedule 3 to the FTCTPA were repealed. Further, from this date, entitlement to fuel tax credits under the FTA is no longer affected by subitems 11(5) or 11(6) of the FTCTPA.

Section 41-5 of the FTA provides that you are entitled to fuel tax credits for taxable fuel that you acquire in Australia to the extent you do so for use in carrying on your enterprise, if you are registered for GST.

You are registered for GST and acquire taxable fuel for use in carrying on your enterprise. However, subsection 43-5(1) of the FTA (as amended) states that the amount of your fuel tax credit is determined by reducing the amount of effective fuel tax by the amount of carbon reduction.

Section 43-8 of the FTA provides for working out the amount of carbon reduction and subsection 43-8(4) of the FTA provides for those circumstances where the amount of carbon reduction will be nil. Where you acquire the fuel for use in 'agriculture', subparagraph 43-8(4)(b)(i) of the FTA states that the carbon reduction will be nil.

Subsection 43-15(1) of the FTA provides that the expression 'agriculture' means:

Further, subsection 43-15(2) of the FTA states that an activity is not agriculture, 'unless the activity is conducted for the purposes of, or for purposes that will directly benefit, a business conducted to obtain produce for sale.'

Paragraph 91 of Draft Fuel Tax Ruling FTR 2012/D1 Fuel tax: fuel tax credits for taxable fuel acquired or manufactured in, or imported into, Australia for use in carrying on an enterprise involving 'agriculture' as defined in section 43-15 of the Fuel Tax Act 2006 (FTR 2012/D1) explains that an activity will be considered to 'directly benefit a business undertaken to obtain produce for sale' if there is a close and immediate positive benefit to the business resulting from the activity in question.

The activities you are undertaking in the process of restoring the quarry site as land that can be use for agricultural purposes may be considered to be 'the cultivation of soil' under normal principles. However, the activities you are performing will not have a sufficiently close or immediate positive benefit to a business undertaken to obtain produce for sale. This is so because there is not currently an agricultural business in operation on the site, and the motivation for completing the work is driven by a legal requirement to rehabilitate the land rather than for an immediate agricultural purpose.

Similarly, whilst paragraph 43-30(e) of the FTA provides that the carrying out of earthworks for use in a core agricultural activity will be considered an agricultural construction activity, your activities are neither for use in a core agricultural activity or carried out on what is currently an agricultural property and as such you are not undertaking an agricultural activity for the purposes of section 43-30 of the FTA.

It follows that as your activities are not agriculture that section 43-8 of the FTA applies. As such, you must reduce the amount of effective fuel tax by the amount of carbon reduction in calculating your fuel tax credit entitlement.

Accordingly, you are entitled to fuel tax credits at the full rate less the amount of the carbon reduction for diesel you acquire and use in your plant and equipment to restore a quarry site to agricultural land for the period 1 July 2012 and 30 June 2013. The rate for diesel you can claim for this period is 31.933 cpl.

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