Issue
Is the use of diesel fuel to generate power for use in and to supply water to a land based shed where spat are cultivated, pearl oysters are implanted and pearls are extracted from oysters, 'pearling operations' as defined in subsection 34(3) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA)?
Decision
Yes. The use of diesel fuel to generate power for use in and to supply water to a land based shed where spat are cultivated, pearl oysters are implanted and pearls are extracted from oysters is 'pearling operations' as defined in subsection 34(3) of the EGCSA.
Facts
The client is engaged in pearling operations in the form of an ocean based pearl farm.
This activity is supported by a purpose built aquaculture facility.
At this facility, live pearl oysters are 'implanted' and then returned to the pearl farm for up to two years. After the pearls have fully developed, the pearl oysters are brought back to the facility where they are placed in water flow tanks to rest. Once the oysters are relaxed, the pearls are extracted from the shells. The live oysters are then returned to the pearl farm to enable them to develop another pearl.
The facility is also used as a hatchery, where spat (baby oysters) are bred in captivity. Once large enough, the spat are transferred to the ocean based pearl farm.
Diesel generators are used to generate power for use in the land based facility and to provide water to the facility.
Reasons for Decision
Under section 53 of the EGCSA, an entity is entitled to an off-road credit if they purchase diesel fuel for use by them 'in primary production'. The definition of primary production includes 'fishing operations' and 'fishing operations' is in turn defined in section 34 of the EGCSA as meaning (amongst other things) pearling operations.
'Pearling operations' are defined in subsection 34(3) of the EGCSA as: (a) the taking of pearl shell; or (b) the culture of pearls or pearl shell and includes the taking or capturing of trochus, beche-de-mer or green snails.
The Macquarie Dictionary 2001 rev. 3rd ed, The Macquarie Library Pty Ltd, NSW provides the following definitions: 'culture': the raising of plants or animals, especially with a view to their improvement. 'cultured': cultivated; artificially nurtured or grown. 'cultured pearl': a pearl grown around a speck of foreign matter artificially introduced into the shell of an oyster or clam.
'culture': | the raising of plants or animals, especially with a view to their improvement.
'cultured': | cultivated; artificially nurtured or grown.
'cultured pearl': | a pearl grown around a speck of foreign matter artificially introduced into the shell of an oyster or clam.
That is, the culturing of pearls or pearl shells is the nurturing or artificial growing of pearls or pearl shells.
The facility is a purpose built aquaculture facility where the client implants the live oysters, extracts the pearls from the shells and breeds baby oysters (spat). These activities are the culturing of pearls or pearl shells and are therefore 'pearling operations'.
In establishing whether a person has used diesel fuel in pearling operations (and therefore in primary production), the meaning of the term 'in' must be determined.
The preposition 'in' has been accepted as meaning 'in the course of' (see Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance) (1998) 87 FCR 482). Therefore, if an activity can be said to have taken place 'in the course of' fishing operations, it can be concluded that it also takes place in fishing operations.
In Commissioner of Taxation v. Payne (2001) 202 CLR 93; 2001 ATC 4027; (2001) 46 ATR 228; Chief Executive Officer of Customs v. WMC Resources Ltd (as agent for East Spar Alliance) (1998) 158 ALR 241 ; Wandoo Alliance Pty Ltd v. CEO of Customs [2001] AATA 801, it was deemed pertinent to consider whether there was a causal, spatial or temporal link present in determining if an activity takes place 'in the course of' something.
Therefore, any diesel fuel used 'in the course of' undertaking the pearling operations will be considered to be part of those pearling operations.
In this instance, a causal link exists, as supplying water and power to the facility is functionally integrated with the pearling operations. There is a spatial link as the facility is a place at which pearling operations are undertaken. There is also a temporal link as the water and power are supplied to the site of pearling operations in a timely fashion and form an integral part of the activity of extracting pearls from the mature oysters and breeding baby oysters.
Accordingly, supplying water and power to the facility occurs in the course of 'pearling operations' .