Issue
Is a statutory body that distributes disease-free seedlings to growers, involved in 'agriculture' as defined in subsection 164(7) of the Customs Act 1901 for the purposes of the diesel fuel rebate scheme, when it grows with the intention of sale: (a) mature plants (from seedlings that are excess to the growers' needs), and (b) crops?
Decision
Yes. A statutory body that distributes disease-free seedlings to growers is involved in 'agriculture' as defined in subsection 164(7) of the Customs Act for the purposes of the diesel fuel rebate scheme, when it grows with the intention of sale: (a) mature plants (from seedlings that are excess to the growers' needs), and (b) crops.
Facts
A statutory body established under a State Act has the objective of assisting a particular primary industry by improving the quantity and quality of their crops.
The primary use of land available to the statutory body is the growing of disease-free immature plants for distribution to local growers. The growers receiving the disease-free immature plants are commercial growers.
Under the State Act, the commercial growers pay a levy to the statutory body which is reduced by any other income the statutory body receives. The statutory body receives its additional income from: (a) the sale of any plants excess to the growers' needs, and (b) the sale of plants grown on any land on its properties that is not required for the production of disease-free immature plants.
The cultivation of the excess plants and the plants grown with the intention of sale involves standard farming practices such as the preparation of the soil, planting, irrigation, herbicide applications and allowing land to lay fallow as well as the harvesting of the seed ready for supply to the growers.
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 are: • the cultivation of the soil; and • the cultivation or the gathering in of crops.
The definition of 'agriculture' also imposes an overriding test that requires most of the activities listed in the definition of agriculture, including the cultivation or the gathering in of crops, 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) 'the cultivation of the soil' and /or 'the cultivation or the gathering in of crops'; 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 the cultivation of the soil and/or the cultivation or the gathering in of crops?
Case law has not highlighted any particular trade meaning of 'cultivation', and therefore the term should be interpreted to take its ordinary, common meaning. Given that the Customs Act distinguishes between cultivation of the soil and cultivation of the crop, the former category includes all activities necessary to enable sowing of the crop, whereas the latter category includes all activities necessary to 'raise or produce a crop', which would include all activities necessary for the survival and nurturing of the crop. The gathering in of crops ceases when the crop is physically brought together.
The cultivation of the excess crop and the crop grown with the intention of sale involves standard farming practices such as the preparation of the soil, planting, irrigation, herbicide applications and allowing land to lay fallow as well as the harvesting of the seed ready for supply to the growers. These activities fall within the commonly understood meanings of 'cultivation' and 'gathering in'.
Are the activities carried out for the purposes of, or for purposes that will directly benefit, a business undertaken to obtain produce for sale?
Although ancillary to the statutory body's main activities, the cultivation and sale of mature crops results in a profit (albeit one that is passed onto farmers in the form of a reduced levy). The activities are also carried out on a commercial scale. Therefore it could be argued that the body's activities are carried out for the purposes of a business undertaken to obtain produce for sale. In any event, the statutory body's activities will meet the second limb of the business test, as they directly benefit the businesses operated by farmers. The direct (that is, close and immediate) benefit enjoyed by farmers is the reduction in levies they enjoy as a result of the profits derived by the statutory body.
Conclusion
The statutory body is carrying on activities that constitute the cultivation of the soil and the cultivation and the gathering in of crops, and its activities are carried on for the purpose of, or for purposes that will directly benefit a business undertaken to obtain produce for sale. Therefore, the growing of disease-free seedlings to maturity by the statutory body is 'agriculture' as defined in subsection 164(7) of the Customs Act for the purposes of the diesel fuel rebate scheme.