Sales Tax Determination

STD 97/3

Forestry activities in the agricultural industry

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FOI status:

May be releasedFOI number: I 1218323

Background

Under the sales tax law, exemption is provided for certain vehicles where they are for use by persons mainly in carrying out activities in agricultural industry - item 3 in Schedule 1 to the Sales Tax (Exemptions & Classifications) Act 1992 (ST (E & C) Act).

The question has arisen whether certain forestry activities are activities in agricultural industry.

Forestry activities are typically carried out in three distinct categories of forests:

Forest plantations

*

Forests that have been established through planting and which are managed using an on-going program of cultivation and improvement until the timber is harvested.

(Establishing and managing a forest plantation would include forest management activities such as planting (including land preparation), fertilising, watering, clearing, thinning, fire, disease and pest control and other activities that are necessary for the on-going tending of the trees).

Tended natural forests

*

Forests where naturally sown timber is tended and managed using an on-going program of cultivation and improvement until the timber is harvested.

Untended natural forests

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Forests where naturally sown timber is not further cultivated, tended or managed prior to harvesting. Some minor preparatory work may be carried out to gain access to permit felling and transport of the timber.

This Determination examines whether persons engaged in the establishment, management or harvesting of forests are carrying out activities in agricultural industry and are, therefore, eligible for exemption on the vehicles listed in item 3 of the ST (E & C) Act when used mainly for that purpose.

Issue

Are the following people carrying out activities in agricultural industry?

*

persons who establish, manage or harvest forest plantations;

*

persons who manage or harvest tended natural forests; and

*

persons who fell and carry away trees in untended natural forests.

Decision

Forest plantations

*

persons (including sub-contractors) who establish, manage or harvest forest plantations are engaged in activities in agricultural industry. They are entitled to exemption on the vehicles referred to in item 3 of the ST (E & C) Act where the vehicles are for use by them mainly in carrying out these forestry activities.

Tended natural forests

*

persons (including sub-contractors) who manage or harvest tended natural forests are engaged in activities in agricultural industry. They are entitled to exemption on the vehicles referred to in item 3 of the ST (E & C) Act where the vehicles are for use by them mainly in carrying out these forestry activities.

Untended natural forests

*

persons (including sub-contractors) who merely fell and carry away trees in untended natural forests are not carrying out activities in agricultural industry. They are not entitled to exemption on the vehicles listed in item 3 of the ST (E & C) Act when used in these forestry activities.

Where sales tax has been paid on vehicles that qualify for exemption under this Determination, a refund may apply under the credit provisions in the sales tax law. An entitlement to a credit will be subject to a claimant satisfying the normal requirements of the relevant credit provision.

Date of Effect

This Determination is effective immediately and replaces any previous private rulings to the extent that they are inconsistent with this Determination.

Reasons

Item 3 of the ST (E & C) Act provides exemption from sales tax for:

'The following goods for use by a person mainly in carrying out activities in agricultural industry:

(a)

motor vehicles known as four wheel drive vehicles, with body type of jeep, platform, pick-up or utility;'

(b)

motor cycles that:

(i)

have a heavy duty rear carrier; and

(ii)

have a front mudguard position that allows high clearance; and

(iii)

have no passenger footrests and no seat strap;

(c)

trailers and similar vehicles, but not including motor vehicles or semi-trailers;

(d)

livestock carriers designed for use with vehicles.

[Parts, accessories and attachments]'

The word 'agriculture' is defined in subsection 3(2) of the ST (E & C) Act to include:

'(a)

viticulture, horticulture, pasturage, apiculture, poultry farming and dairy farming;

(b)

other operations connected with the cultivation of the soil, the gathering in of crops and the rearing of livestock.'

The word 'includes' introduces an enlarging but not exhaustive definition. Therefore, the meaning of the word 'agriculture' is taken to be the ordinary meaning of the word plus the defined meaning, in line with the principles of statutory interpretation.

Ordinary meaning of 'agriculture'

The Macquarie Dictionary defines 'agriculture' to be:

'the cultivation of land, including crop-raising, forestry, stock-raising; farming'.

In turn, 'forestry' is defined by the Macquarie Dictionary as:

'1. the science of planting and taking care of forests. 2. the act of establishing and managing forests.'

The word 'crop' is defined by the Macquarie Dictionary as:

'the cultivated produce of the ground as grain or fruit, while growing or when gathered.'

Whether activities are 'agriculture'

It is necessary to examine whether various forestry activities constitute 'operations connected with the cultivation of soil' within the definition of 'agriculture' in subsection 3(2) of the ST (E & C) Act or whether they constitute the 'cultivation of land' within the ordinary meaning of those words used in the Macquarie Dictionary definition of 'agriculture'.

It is also necessary to consider whether the felling and taking of timber from forests constitutes the 'gathering in of crops' within the definition of 'agriculture' in subsection 3(2) of the ST (E & C) Act and whether the timber is a 'crop' within the ordinary meaning of the word so that forestry activities might be 'crop-raising' within the ordinary meaning of those words used in the Macquarie Dictionary definition of 'agriculture'.

Cultivation of the soil/cultivation of land

In Safety Beach Estate Pty Ltd v. Commissioner of Land Tax (NSW), the Court was required to consider whether certain property where forestry activities were carried out was 'Land used for primary production' where that term was defined to mean:

'land used primarily for - (a) the cultivation thereof for the purpose of selling the produce of such cultivation'.

The Court held that cultivation of land should not be confined to annual crops or crops with periodical production and was equally applicable to the cultivation of forests. Cultivation of the land conveys the idea of improvement of the land in order to sell the produce of that improved land. Land can be cultivated by breaking up the soil. It can also be cultivated by improving the water supply to the plants, by fertilising, by spraying plants with insecticides and fungicides and by the establishment of windbreaks.

Regardless of how the crop is sown, it was held that there is cultivation of the land in a particular year if, in that year, it is tended, or subject to a programme of tending, in accordance with the practices of husbandry applicable to that crop.

Gathering in of crops

If forest timber is planted or sown, tended, managed and later felled and carried away, it is accepted that the timber was a crop which has been gathered in.

If forest timber, naturally sown, is tended, managed and later felled and carried away, the Safety Beach Estate case is authority for accepting that the timber was a crop that had been gathered in.

It was held in the Safety Beach Estate case that timber could not be the 'produce of cultivation' if the work carried out on the land related only to felling and carrying away the trees.

In accordance with that finding, it is considered that the ordinary meaning of the word 'crop' in the phrase 'gathering in of crops' in the definition of 'agriculture' in subsection 3(2) of the ST (E & C) Act, would not extend to timber in natural forests that is merely felled and carried away.

Forest plantations

Activities involved in establishing and managing a forest plantation would constitute 'agriculture' within the ordinary meaning of the word. These activities would also be 'operations connected with the cultivation of the soil' within the definition of 'agriculture' in subsection 3(2) of the ST (E & C) Act.

Harvesting the trees as the produce of the on-going forest management activities would be accepted as the 'gathering in of crops' within the definition of 'agriculture' in subsection 3(2) of the ST (E & C) Act.

Activities related to establishing, managing or harvesting a forest plantation (including activities by sub-contractors) would therefore be 'activities in agricultural industry' within item 3 of Schedule 1 to the ST (E & C) Act.

Tended natural forests

Forest management activities conducted in a systematic and on-going way in a natural forest (including activities by sub-contractors) are accepted as 'activities in agricultural industry' for the same reasons given in relation to activities in forest plantations.

Harvesting the trees as the produce of those systematic and on-going forest management activities would also be activities in agricultural industry. Whether activities conducted in a natural forest qualify as forest management activities and, therefore, activities in agricultural industry will always be a question of fact to be determined in each case. The conditions or rights stipulated in the contract between the owner of the natural forest and the person conducting the activities will be relevant in answering this question.

Persons using vehicles listed in item 3 of the ST (E & C) Act mainly in carrying out forest management activities in forest plantations or tended natural forests, may claim exemption from sales tax. Exemption is also available to sub-contractors where the vehicles are for use by them mainly in carrying out these activities.

Felling and carrying away trees in untended natural forests

The felling and carrying away of trees in natural forests that have not been subject to systematic and on-going tending or management is not accepted as an activity in agricultural industry.

These activities are not 'agriculture' according to the normal meaning of this word nor are they an 'operation connected with the cultivation of the soil' or 'the gathering in of crops' within the definition of 'agriculture' in subsection 3(2) of the ST (E & C) Act.

In the Safety Beach Estate case, Rath J expressed the view that cultivation of land did not occur where the only work carried out was the felling and carrying away of trees in natural forests.

Exemption is not available for vehicles listed in item 3 that are used for this activity.

Communication of the Decision

This Determination has been made available for publication by the sales tax publishing houses and will be provided to interested persons upon request.

Commissioner of Taxation
11 June 1997

Previously released as STD 96/D1

References

ATO references:
NO NAT 96/10888-5

Subject References:
agriculture
agricultural industry
crops
cultivation of soil
forestry activities
vehicles

Legislative References:
Sales Tax (Exemptions and Classifications) Act 1992 Item 3 Schedule 1
Sales Tax (Exemptions and Classifications) Act 1992 Subsection 3(2)

Case References:
Safety Beach Estate Pty Ltd v. Commissioner of Land Tax (NSW)
79 ATC 4032
(1979) 9 ATR 451