Ostwald Bros Civil Pty Ltd atf Ostwald Bros Family Trust v Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Federal Court of Australia (339 of 2007)
Judgment date: 11 June 2008
Date published: 11 November 2011

Summary of decision:
Whether purchase of diesel fuel for use in earthworks for the construction of a rail line and maintenance road alongside the rail line are eligible activities that qualify for off-road credits under the Energy Grants (Credits) Scheme Act 2003.

Overview of facts:
1. This was an appeal from a decision of the Administrative Appeals Tribunal (AAT) to set aside an objection decision of the Commissioner of Taxation (Commissioner). The objection decision related to a private ruling made by the Commissioner on 10 April 2006. | 2. The Applicant was a sub-contractor to a mining company who undertook earthworks to enable the construction of a rail line and access road alongside of the rail line. The rail line is used to transport coal from the mine site to the port for export (no beneficiation occurs at the port as the coal is power grade coal and is not subjected to any further processing after it leaves the mine site). | 3. The works undertaken by the Applicant comprised: a) The clearing of virgin land and the removal and stockpiling of topsoil; b) The earthworks to construct an eight metre wide construction haul road for safe access to the site during the works and remaining upon completion of the works for the purpose of private access to and maintenance of the railway; c) The necessary bulk earthworks to construct the rail formation and achieve the required vertical and horizontal alignment; d) The extraction and haulage of materials from within the wider easement and from adjoining properties due to a major shortfall in cut-to-fill balance; e) The earthworks for bridge abutments and approaches; f) The earthworks for the construction of the Dawson Highway Overpass across the rail formation; g) The earthworks in the formation and wider easement for the installation of all major drainage structures including corrugated metal pipes and precast concrete culvert sections; h) The backfilling of installed drainage structures using cement stabilised soil; i) The necessary 'cuts and fills'; and j) The preparation of the sub-base for the alignment of the railway. | a) The clearing of virgin land and the removal and stockpiling of topsoil; b) The earthworks to construct an eight metre wide construction haul road for safe access to the site during the works and remaining upon completion of the works for the purpose of private access to and maintenance of the railway; c) The necessary bulk earthworks to construct the rail formation and achieve the required vertical and horizontal alignment; d) The extraction and haulage of materials from within the wider easement and from adjoining properties due to a major shortfall in cut-to-fill balance; e) The earthworks for bridge abutments and approaches; f) The earthworks for the construction of the Dawson Highway Overpass across the rail formation; g) The earthworks in the formation and wider easement for the installation of all major drainage structures including corrugated metal pipes and precast concrete culvert sections; h) The backfilling of installed drainage structures using cement stabilised soil; i) The necessary 'cuts and fills'; and j) The preparation of the sub-base for the alignment of the railway. | 3. The applicant applied for a private binding ruling to address the issue of: Whether the carrying out of earthworks to enable the construction of a new rail line and the construction of an access road alongside the rail line fell within paragraph 11(1)(a) or paragraph 11(1)(f) of the Energy Grants (Credits) Scheme Act 2003 (EGCSA). | 4. The Commissioner issued an unfavourable private ruling providing that the relevant activities did not fall within the meaning of 'mining operations' as the activities were not activities undertaken in the preparation of a site to enable mining for minerals to commence nor were they a mining construction activity, but were activities to enable the transport of coal to a port after it had been mined and recovery has ceased. | 5. The Applicant appealed to the AAT. The Tribunal found that the construction of the rail line and the access road fell within the definition of 'mining operations' as defined in paragraph 11(1)(a) of the EGCSA. The Tribunal accepted that the role played by the rail line in the overall operation of the mine and the importance of the rail line as an essential part of the core infrastructure of the mine development, made the construction of the rail line and its access road an activity undertaken in the preparation of a site to enable mining for minerals to commence. | 6. The Tribunal also found that the activities undertaken by the Applicant were not mining construction activities within paragraph 11(1)(f) of the EGCSA | 7. The Commissioner appealed to the Federal Court. The matter was heard by the Full Federal Court. | Issues decided by the court | 1. Whether on the facts as found by the AAT, the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line satisfied the statutory requirements for entitlement to an off-road credit pursuant to s53 of the EGCSA. | 2. Whether on the facts as found by the AAT, the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line is a use in activities undertaken in the preparation of a site to enable mining to commence within the meaning of that expression in s11(1)(a) of the EGCSA. | 3. Whether, in considering an entitlement to an off-road credit pursuant to the EGCS Act, the alleged integration of the project was a proper consideration for the Tribunal to have regard to in finding that the Applicant was entitled to an off-road credit for the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line within the meaning of the relevant provisions of the EGCSA. | In a joint decision, their Honours found that the Tribunal asked itself the wrong question. The issue under the EGCS Act was not whether the line and road were "essential" or "integral" to the commercial operation of the Rolleston coal mine. | Activities "in" the preparation of the site must refer to actual physical work which is done as part of the preparation of the site. The statute does not extend to activities "in connection with" or "for the purposes of" such preparation. | The expression "other activities" in para 11(1)(a) of EGCSA takes flavour from its association with "removal of overburden". One starts with "exploration or prospecting" which obviously enough would usually not be confined to the mine site ultimately selected. When that site is identified, work would necessarily have to be done on it before mining could commence. An essential element is that the activity is in preparation of the site, not activity directed towards transporting the product of the mine once the site has been prepared and the mine is in operation. | The Full Court referred to three previous Full Court decisions and a Second Reading speech. | The three previous Full Court decisions referred to were: i) Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. ii) Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1. iii) Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482 | i) Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. ii) Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1. iii) Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482 | The Full Court considered that the precedential value of these decisions was lessened by the substantial changes to the legislation that had occurred since those decisions were handed down. | The Second Reading speech (for the Bill containing the 1997 amendments to the Customs Act 1901 , House of Representative) revealed Parliamentary intention to overcome what were regarded as misinterpretations of legislative intention by the Federal Court and the Administrative Appeals Tribunal in relation to the diesel fuel rebate scheme in the Customs Act. | The Full Court stated that although it was clear that the activities carried out by Applicant were an integrated part of the overall infrastructure of the mine development, those activities enabled the transportation of coal from the mine site to the Port of Gladstone rather than the commencement of mining for minerals. There was therefore no relevant relationship, for the purposes of the section, between the activities and the commencement of mining for minerals. | The Full Court held that the rail line and road were necessary in the commercial and marketing sense to "enable" mining for minerals to commence but they were not activities undertaken in the physical preparation of the site. | The Full Court also found that the proposed transport of coal along the line was not a "mining transport activity" within the meaning of the Act - s11(1)(c) of EGCSA.

Issues decided:
1. Whether on the facts as found by the AAT, the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line satisfied the statutory requirements for entitlement to an off-road credit pursuant to s53 of the EGCSA. 2. Whether on the facts as found by the AAT, the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line is a use in activities undertaken in the preparation of a site to enable mining to commence within the meaning of that expression in s11(1)(a) of the EGCSA. 3. Whether, in considering an entitlement to an off-road credit pursuant to the EGCS Act, the alleged integration of the project was a proper consideration for the Tribunal to have regard to in finding that the Applicant was entitled to an off-road credit for the use of diesel fuel in earthworks for the construction of a rail line to carry minerals from a mine site to a port and the maintenance road alongside the rail line within the meaning of the relevant provisions of the EGCSA. In a joint decision, their Honours found that the Tribunal asked itself the wrong question. The issue under the EGCS Act was not whether the line and road were "essential" or "integral" to the commercial operation of the Rolleston coal mine. Activities "in" the preparation of the site must refer to actual physical work which is done as part of the preparation of the site. The statute does not extend to activities "in connection with" or "for the purposes of" such preparation. The expression "other activities" in para 11(1)(a) of EGCSA takes flavour from its association with "removal of overburden". One starts with "exploration or prospecting" which obviously enough would usually not be confined to the mine site ultimately selected. When that site is identified, work would necessarily have to be done on it before mining could commence. An essential element is that the activity is in preparation of the site, not activity directed towards transporting the product of the mine once the site has been prepared and the mine is in operation. The Full Court referred to three previous Full Court decisions and a Second Reading speech. The three previous Full Court decisions referred to were: i) Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. ii) Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1. iii) Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482 i) Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108. ii) Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1. iii) Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482 The Full Court considered that the precedential value of these decisions was lessened by the substantial changes to the legislation that had occurred since those decisions were handed down. The Second Reading speech (for the Bill containing the 1997 amendments to the Customs Act 1901 , House of Representative) revealed Parliamentary intention to overcome what were regarded as misinterpretations of legislative intention by the Federal Court and the Administrative Appeals Tribunal in relation to the diesel fuel rebate scheme in the Customs Act. The Full Court stated that although it was clear that the activities carried out by Applicant were an integrated part of the overall infrastructure of the mine development, those activities enabled the transportation of coal from the mine site to the Port of Gladstone rather than the commencement of mining for minerals. There was therefore no relevant relationship, for the purposes of the section, between the activities and the commencement of mining for minerals. The Full Court held that the rail line and road were necessary in the commercial and marketing sense to "enable" mining for minerals to commence but they were not activities undertaken in the physical preparation of the site. The Full Court also found that the proposed transport of coal along the line was not a "mining transport activity" within the meaning of the Act - s11(1)(c) of EGCSA.

ATO view of decision:
The decision of the Full Court aligns with the Tax Office interpretation of the legislation as outlined in PGBR 2005/2.

Administrative treatment:
Implications on current Public Rulings & Determinations | An Addendum to PGBR 2005/2 was published on 19 October 2011. An Addendum to FTR 2006/2 was published on 1 November 2011. These rulings were amended to take into account the views expressed in the decision. The changes made by the Addenda clarify the meaning of 'site' and 'other activities undertaken in the preparation of a site to enable mining for minerals to commence' for the purposes of the EGCSA.

Legislative references: Energy Grants (Credits) Scheme Act 2003 11(1)(a) 11(1)(c) 11(1)(f) 12 53
Case references: Regional Director of Customs (Western Australia) v Dampier Salt (Operations) Pty Ltd (1996) 67 FCR 108 Chief Executive Officer of Customs v Dyno Wesfarmers Limited (1997) 73 FCR 1 Chief Executive Officer of Customs v WMC Resources Limited (1998) 87 FCR 482
Subject references: Energy grant (credits) scheme entitlement to off-road credits for use of diesel fuel mining operations other activities undertaken in the preparation of a site to enable mining for minerals to commence