Trustee for Candy Unit Trust and Commissioner of Taxation

[2011] AATA 247

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2011] AATA 247

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No  2010/3548

TAXATION APPEALS DIVISION		)
Re		CANERASE PTY LTD AS THE TRUSTEE FOR CANDY UNIT TRUST

Applicant

And  COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal  Senior Member Bernard J McCabe

Date 14 April 2011

Place Brisbane

Decision  The Tribunal affirms the decision under review.

..............................................

Senior Member

CATCHWORDS

TAXATION — fuel tax credit claims — mining operations — mining waste activity — converting coalstone to coarse powder — decision affirmed

Energy Grants (Credits) Scheme Act 2003, ss 11 and 16

Fuel Tax Act 2006

BHP Billiton Petroleum Pty Ltd and Chief Executive Officer of Customs [2002] AATA 70

Henty House Proprietary Limited (in liq) v Federal Commissioner of Taxation (1953) 88 CLR 141

REASONS FOR DECISION

14 April 2011 Senior Member Bernard J McCabe

1.      The applicant sells soil and other landscaping products. It produces the soil by combining compost and other organic material with an inert substance called coalstone, which acts as a filler. Coalstone is derived from coal waste – that is, from stockpiles of material dug out of a coal mine that was not saleable as coal.  The applicant says it is entitled to claim fuel tax credits under the Fuel Tax Act 2006 in connection with the operation of the loaders and the crusher used to convert the coalstone into a coarse powder which is combined with the compost. The Commissioner says the fuel tax credits are not available because the mining operations at the coal mine site in question ceased long ago.

2.      The Commissioner is right, for reasons I will explain. That means the objection decision under review must be affirmed.

Background

3.      

The parties agreed on the facts. There were no witnesses called at the hearing, although the applicant helpfully brought along some pictures of its operations and three bags of material that illustrated the process by which coalstone was converted into saleable soil. The first bag contained lumps of raw coalstone, which looks like rock. Some of the rock was black; that was poor-quality coal. Some of the rock was white; that material was coal that had already been burned.

Mr Whitehead, on behalf of the applicant, explained that the raw coalstone was dug out of the pit and separated from the valuable coal, which was sold. The coalstone was dumped in a stockpile at the mine site. The stockpiles were inherently unstable because coalstone is combustible. The applicant extracted the material from the stockpile using a loader. The loader fed the coalstone into a crusher which crushed and refined the raw material into a coarse powder. The second bag provided at the hearing contained a sample of the crushed powder. The powder is inert. It is subsequently combined with organic material and sold as part of the applicant’s landscaping supplies business. The third bag contained a sample of the finished product. The applicant emphasised it was only seeking credits in respect of the fuel consumed in the course of extracting the raw material and converting it into the powder which was found in the second bag of material produced at the hearing.

4.      The coalstone in question is stockpiled at a colliery near Ipswich that was operated by an unrelated company for a number of years prior to 1986 when mining operations ceased. The mining lease which covers the site was transferred to a new owner in 1990, and the lease was renewed in 2006. The lease remains current although there is no coal being mined. There is evidence in exhibits one and two suggesting the current leaseholder (who is also unrelated to the applicant) has investigated whether it would be economical to resume production at the colliery. Those investigations have not come to anything at this stage. If production were to resume, it would be necessary to clear the stockpiles of coal waste. Those stockpiles will have to be removed in any event over time as the mine site is rehabilitated in accordance with the terms of the licence and regulatory requirements.

5.      The applicant occupies a portion of the mine site under a lease from the property owner, who holds the mining lease. A copy of the lease is found in exhibit two at p 182ff. The lease authorises the applicant to engage in soil manufacturing activities. The applicant has access to the stockpiles for that purpose although I do not understand there to be any suggestion that the property owner has contracted with the applicant to carry out rehabilitation activities in relation to the property. The applicant has been conducting its business at the site since 2007.

The legislation

6.      

The diesel fuel rebate scheme legislation has been amended on a number of occasions. Where a taxpayer seeks a fuel tax credit after 1 July 2006,  the Fuel Tax Act 2006 requires that the taxpayer demonstrate its activities satisfy the requirements for a fuel tax credit under the Energy Grants (Credits) Scheme Act 2003 (“the EGCS Act”). Section 53(2) of the EGCS Act says an off-road credit is potentially available in respect of mining operations. The expression mining operations is defined in s 11. I note that s 11(2) expressly excludes quarrying and dredging activities carried on with a view to extracting material for use in landscaping and similar activities – although I accept the applicant’s activities may not answer the description of “quarrying” let alone “dredging”. The Commissioner does not rely on s 11(2). He says the applicant’s activities do not answer the definition in

s 11(1).

7.      

Section 11(1)(a) does not adequately describe the applicant’s activities since the applicant is not engaged in exploration nor does it remove overburden or undertake other activities on the site “to enable mining for minerals to commence”. While I have already referred to the evidence suggesting the mining leaseholder retained the option of resuming mining activities, there is no evidence that the relationship with the applicant was brought into existence in furtherance of that aim. Section 11(1)(b) does not assist the applicant either because there are no “operations for the recovery of minerals” being carried on. The applicant conceded – correctly in my view, given the state of the evidence – that the activities were not “a mining rehabilitation activity” within the meaning of s 11(1)(d). That leaves only

s 11(1)(g), which includes within the definition of mining operations “a mining waste activity”.

8. Section 16 says “mining waste activity” means:

(a)     the removal of waste products of a mining operation referred to in paragraph (a) or (b) of the definition of that expression in subsection 11(1) from the place where the mining operation is carried on; or

(b)     the disposal of waste products of a mining operation referred to in paragraph (a) or (b) of the definition of that expression in subsection 11(1) at the place where the mining operation is carried on. [Emphasis added]

9. The Commissioner says the reference in ss 16(a) and (b) to activities undertaken at a place where a mining operation is carried on has the effect of limiting eligibility under the scheme to situations where a mine is still in operation. The colliery in this case was shut down some time ago.

10.     The applicant says that argument is wrong because the parliament surely did not intend to distinguish between activities occurring during the production and rehabilitation phases of a mine’s life. As the applicant explains, mining activities do not end when the mine ceases production; many years of work might lie ahead of the mine operator as it rehabilitates the mine site in accordance with the licence conditions and other regulations. The applicant says it would make no sense to say credits were available in respect of some activities occurring on the mine site and not others.

11.     I am inclined to accept that the words of the section mean what they say: they require that the mining operations remain on foot before credits are available. But if there is any doubt on that question, it is resolved by reference to the extrinsic material, most obviously the second reading speech that accompanied the introduction of the Customs and Excise Amendment Bill 1995 which introduced what is now s 11 of the EGCS Act. The parliamentary secretary’s remarks suggest a narrow interpretation of the words of the section is appropriate. It seems the parliament did intend to limit the credits to situations where it is possible to establish a clear link with ongoing mining activities.

12.     Mr Whitehead, for the applicant, argued in the alternative that mining operations on the site were still being carried on because his firm was undertaking a mining waste activity within the meaning of s 11. I do not think that argument can succeed in light of the words of the definition in s 16. The process of crushing and refining the coalstone (the only part of the applicant’s activities which could possibly give rise to a credit) does not involve removing the coalstone. The material is merely being fed through a crusher. Nor do I accept that the material is being disposed of. I accept the expression “disposal” is a slippery one: the Commissioner, relying on the High Court’s decision in Henty House Proprietary Limited (in liq) v Federal Commissioner of Taxation (1953) 88 CLR 141, argued that disposition referred to:

“every event by which property ceases to be available to the taxpayer for use for the purpose of producing assessable income, either because it ceases to be his, or because it ceases to be physically assessable to him, or because it ceases to exist”: at 151-152 per Williams ACJ, Webb, Kitto and Taylor JJ.

I am not sure whether the reasoning in that case is entirely helpful. It considered whether property that was compulsorily acquired pursuant to a statute could be said to be a disposition of property (in supposed contrast to a voluntary disposition of property). In this case, the words of the statute are not directed towards the disposition of an interest in the property, either compulsorily or otherwise. The use of the word disposal in this context is a reference to somehow “getting rid” of the material. The activities in question here – specifically, feeding the coalstone through a crusher – do not get rid of the waste product. At most, the activities are the first step in a process that will eventually result in the coalstone being consumed in the manufacture of landscaping soils. It may be that the coalstone will be disposed of when it is combined with the organic material, but I do not think the disposition occurs before that discrete step takes place (cf BHP Billiton Petroleum Pty Ltd and Chief Executive Officer of Customs [2002] AATA 705, where the Tribunal suggested that material which was useful could not be regarded as a waste product in any event: at [76]).

Conclusion

13.     The objection decision under review must be affirmed.

I certify that the 14 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Bernard J McCabe

Signed: ....................................................................................
  Kerri Smith

Date of Hearing  12 April 2011 
Date of Decision  14 April 2011
Advocate for the Applicant             Mr G Whitehead
Counsel for the Respondent          Kerri Mellifont SC