Sales Tax Determination

STD 98/7

Machinery for use in the excavation or movement of earth, rock or natural deposits in the soil

• Please note that the PDF version is the authorised consolidated version of this ruling and amending notices.
  This document has been Withdrawn.
  View the Withdrawal notice for this document.

FOI status:

May be releasedFOI number: I 1017840

Background

The sales tax law provides an exemption for machinery used by contractors mainly in carrying out earth-moving contracts for local councils and certain government departments or authorities, whose own use of the machinery would be exempt.

In an Administrative Appeals Tribunal (AAT) case, (Case 1/98 98 ATC 101; AAT Case 12,546 (1998) 37 ATR 1258), the Tribunal decided that a pile driving hammer and a power pack are each either a part, accessory or attachment to a pile driving machine used mainly in earth-moving.

As a result of this decision, the Australian Taxation Office (ATO) has reviewed Sales Tax Determination STD 95/10.

This Determination sets out the ATO view on the activities that amount to earth-moving and gives examples of machinery that may qualify for exemption under Item 37 in Schedule 1 to the Sales Tax (Exemptions and Classifications) Act 1992 (ST(E&C) Act).

Issue

What activities involve earth-moving for the purposes of Item 37 in Schedule 1 to the ST(E&C) Act?

Decision

The following activities involve the excavation or movement of earth, rock or natural deposits in the soil and are therefore earth-moving:

*

excavation and digging

*

grading and scraping

*

spreading or compacting of earth

*

consolidating earth

*

spreading or compacting of blue metal and gravel

*

compacting stone base of roads laid over earth base

*

earth drilling

*

driving piles and caissons into earth to stabilise building sites

Machinery used mainly in these activities under a contract to a government or local council body qualifies for exemption under Item 37.

Exemption does not apply to:

*

road vehicles used to transport or deliver earth or rock;

*

machinery used to move manufactured materials such as bitumen, asphalt or similar mixes; and

*

machinery which displaces or moves earth incidentally to the principal function of the machine.

This Determination extends the basis for exemption previously adopted in Sales Tax Determination STD 95/10. As a result of the AAT decision, pile driving hammers and power packs used mainly to drive piles and caissons into the earth qualify for exemption under Item 37.

Date of effect

This Determination is effective immediately. It replaces any previous private ruling to the extent that it is inconsistent with this Determination. Nothing in this Determination may be taken as automatically authorising a refund before the date of effect of the Determination. Credit claims will be considered on their individual merits.

Sales Tax Determination STD 95/10 is withdrawn from the date of effect of this Determination.

Reasons

There is no general exemption for earth-moving machinery used for business or industrial purposes.

However, Item 37 in Schedule 1 to the ST(E&C) Act exempts:

1.

'Machinery, implements or apparatus (other than general-purpose road vehicles or parts for those vehicles) for use by a person mainly in earth-moving in the course of carrying out contracts for a body whose own use of the machinery or equipment would be covered by exemption Item 64, 126 or 127.

2.

In this Item, "earth-moving" means the excavation or movement of earth, rock or natural deposits in the soil.

[Parts, accessories and attachments]'

A critical requirement is that machinery must be used mainly in earth-moving, which is the excavation or movement of earth, rock or natural deposits in the soil.

Earth-moving would include earth drilling, general digging, grading and scraping of the ground, building dams, tunnels, trenches and other works associated with the construction of roads.

When considering whether pile driving equipment is used in earth-moving, the Tribunal in Case 1/98; AAT Case 12,546 found that where a concrete, steel or timber pile is driven through the earth, a process of compaction of the earth takes place similar in effect to the use of a road roller to compact on a horizontal plane. Where, however, a caisson is driven, the Tribunal found that it is an essential step in that process that the earth is actually removed to another place.

The Tribunal concluded at ATC 105; ATR 1262:

'First and foremost pile driving is undertaken to compact or remove earth both of which are earthmoving as defined in Item 37(2).'

There is no requirement that the material being moved or spread is naturally occurring at the site of the works. Therefore, the spreading or movement, during the construction of roads, of blue metal and gravel that has been brought onto site from another geographical location would qualify as earth-moving. Similarly, a chipspreader that spreads an even layer of blue metal and gravel brought onto site, would qualify for exemption.

Examples of the types of machinery that may qualify for exemption are earth drillers, backhoes, chipspreaders, excavators, face shovels, front end loaders, pile drivers, rammers used for consolidating earth, road graders, road rollers for use in compacting earth and stone base, scoops, scrapers and sheepsfoot rollers.

The exemption does not extend to all situations where there may be some movement or displacement of earth incidental to the principal function of the machinery. For example, the displacement of earth as a road sweeper cleans sealed roads. The road sweeper machinery sweeps and vacuums roads with the purpose of cleaning and maintaining them. The movement of dirt and loose stones is incidental to the operation of the machinery. The road sweeper machinery is not used mainly in earth-moving and would not be exempt under Item 37 even if it was used in a government or local council contract.

Similarly, machinery used to move manufactured materials would not involve earth-moving as there is no movement of earth, rock or natural deposits in the soil. This would include bitumen spraying machinery, hot mix spreading units, road rollers used to compact hot mix and other asphalt and similar mixes, machinery used to lay concrete roads and water spraying machinery.

Road vehicles used to transport or deliver earth or rock are specifically excluded from exemption by the subitem and exemption does not apply to machinery used mainly on private excavation work, such as building private roads or the digging of foundations for private buildings.

Communication of the Decision

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

Commissioner of Taxation
18 November 1998

References

ATO references:
NO 95/8396-3

Related Rulings/Determinations:

STD 95/10

Subject References:
sales tax exemption
earth-moving contractors
earth-moving machinery
implements or apparatus
pile driving hammers and power packs

Legislative References:
ST(E&C) Schedule 1, Items 37, 64, 126, 127

Case References:
AAT Case 1/98
98 ATC 101

AAT Case 12,546
(1998) 37 ATR 1258