1

House: House of Representatives

Portfolio: Industry, Science and Technology

Commencement: The measures contained in the Bill will commence on dates ranging from 1 August 1986 to Royal Assent. The commencement dates for the various measures are detailed in the Main Provisions section.

Purpose

The Bill will alter the eligibility for the diesel fuel rebate by:

. restricting the agricultural and mining usage qualifying for the rebate; and

. removing the rebate for residential usage unless this is connected to agricultural and mining operations.

Amendments relating to agricultural and mining usage will apply to fuel used from 1 August 1986 unless a claim in relation to fuel used since that time has been determined.

Background

Prior to 1982, no excise or customs duty was imposed on diesel fuel used off- road. This led to the situation where diesel was substituted for other fuels subject to excise and to the use of diesel fuel in on- road situations where the excise was not paid as the usage was accredited as off- road. To prevent revenue loss and abuse of the scheme, it was announced in the 1982- 83 Budget that excise would be imposed on all diesel fuel and that a rebate would be allowed for legitimate off- road usage. Budget Paper No. 1 1982- 3 states:

The excise exemption for distillate used off- road has been removed and it is estimated that only about two- fifths of previously exempt distillate consumption will benefit from the rebate arrangements. 1

Those eligible for the rebate included primary producers, mining operations and residential

nursing and aged persons homes.

While the initial intention of the rebate scheme was to allow a full rebate of the excise paid for eligible users, from 1983 various claimants were eligible for less than a 100% rebate. The 100% rebate generally remained available to agricultural users but a lower rebate was provided for mining use.

Revenue loss as a result of changes to the rebate proposed by this Bill is shown in the following Table, which also shows the rebate estimated to be payable to primary producers and the mining sector. The Table provides estimated revenue loss in both the 1994- 5 Budget (before the measures contained in this Bill were announced) and the 1995- 6 Budget (which contain the measures to be introduced by this Bill).

Primary production

1994- 5 1995- 6 1996- 7 1997- 8 1994- 5 Budget ($m) 515.7 543.4 565.7 586.0 1995- 6 Budget ($m) 514.5 551.2 578.8 609.3 Mining

1994- 5 1995- 6 1996- 7 1997- 8 1994- 5 Budget ($m) 632.1 691.4 757.9 819.1 1995- 6 Budget ($m) 657.4 705.3 795.3 869.8As can be seen from the above Table, estimated revenue loss is greater in the 1995- 6 Budget than was estimated in the 1994- 5 Budget. Budget Paper No. 1 1995- 6 explains the increased revenue loss despite the changes proposed by this Bill as due to:

Despite a tightening of eligibility criteria for the DFRS, rebates will rise as a result of increased consumption of diesel fuel and the effects of periodic indexation adjustments of the excise rate. 2

Changes to the availability of the rebate for mining companies was anticipated before the delivery of the 1995- 6 Budget. For example, the Australian Financial Review forecast a cut in the rebate available to the mining industry on 19 April 1995 and this was followed by the Australian Mining Industry Council which was reported on 20 April 1995 as protesting against such a measure.

Since the release of the 1995- 6 Budget, most attention in relation to the rebate has centred on the retrospective operation of some of the measures announced. This is more fully dealt with in the Main Provisions section but, basically, involves changes to eligibility criteria that will be deemed to have effect from 1 August 1986. The changes dating from 1 August 1986 will not effect claims decided before the Bill receives Royal Assent.

In a Press Release dated 2 June 1995, the Business Council of Australia objected to the retrospective nature of the changes on the following grounds:

. retrospective changes to the law are dangerous in principle and have only be used previously to address major issues, such as tax evasion or artificial schemes;

. Australian citizens and companies should not be denied the right to rely on the law as enacted and the Courts interpretation of it;

. past claims of some companies have been paid while others have not and this will remove the entitlement to the rebate selectively between companies; and

. the decision increases the sovereign risk for foreign businesses (ie. risk of government action to alter investment risks).

As noted above, the retrospective effect of the Bill will apply only to claims not determined by the time the Bill receives the Royal Assent, so that claims may be lodged, and determined, between the announcement of the measure and the Bill, if passed, receiving the Royal Assent. In a Press Release dated 31 May 1995 the Minister notes that the estimated cost to revenue of pending claims prior to the proposed amendments was $70 million in 1995- 6 and that since the Budget announcement this has increased to $140 million.

The rebate for residential use of diesel fuel not connected with agriculture or mining operations (as defined) will be abolished, although there will be no retrospective effect on the availability of the rebate. This will not effect the availability of the rebate for hospitals, nursing homes, other institutions providing medical or nursing care or homes for aged persons. The explanatory memorandum to the Bill estimates revenue savings from the changes in the Bill as:

Residential: $13.6 million in 1995- 6 offset by $1.8 million in compensation;

Agriculture: $40 million on claims under review or unpaid due to retrospective changes and $15 million in 1995- 6;

Mining: $16 million on claims under review or unpaid due to retrospective changes and $5 million in 1995- 6; and

Removal of `sweeper clauses' (the application of sweeper clauses will be discussed below): $30 million on claims under review or unpaid due to retrospective changes and $7 million in 1995- 6.

Main Provisions

Application

Clause 5 of the Bill deals with the law that will apply to applications not determined by the time the Bill, if passed, receives the Royal Assent. The basic rule is that applications not decided before Royal Assent and applications to the Administrative Appeals Tribunal (AAT) not decided before Royal Assent will be determined in accordance with the Customs Act 1901 or the Excise Act 1901 as amended by this Bill. This will not apply to applications for a rebate in respect of fuel used at residential premises for the provision of food, drink, lighting, heating, air- conditioning, hot water or other domestic requirements of residents of the premises. Sub- clause 5(3) provides that the rebate will apply for the residential uses referred to above where the fuel was purchased before 1 July 1995.

Where there has been a challenge to a rejection of an application for a rebate in the Federal or High Court and the proceedings have not been finalised before the Bill receives Royal Assent, the law to apply to the proceedings will be the Customs Act 1901 and Excise Act 1901 as amended by this Bill [sub- clause 5(4)].

Sub- clause 5(6) provides that an application for a rebate for diesel fuel purchased more than 3 years before the application may only be made if an intention to make such a claim was given before 1 July 1994.

Commencement: Royal Assent.

Amendments to the Customs Act 1901

Agriculture

Section 164 of this Act defines the agricultural activities that are eligible for the rebate and includes a `sweeper clause' which provides that fuel used in operations connected with an agricultural activity will be subject to the rebate. The current category of fuel usage subject to the rebate will be reduced by Items 4 to 6 of Schedule 1 of the Bill. The Items will substitute new provisions into section 164 which will remove the sweeper clause and provide that the following activities will be eligible for the rebate:

. cultivation of the soil; cultivation or gathering of crops; rearing live- stock; or viticulture, horticulture, pasturage or apiculture to produce goods for sale;

. shearing, frost abatement, hay bailing, the planting and tendering of trees for the purposes of soil or water conservation;

. other activities related to core agricultural activities (ie the activities described in the first dot point if the activity is carried out as part of a business undertaken to obtain produce for sale); and.

. hunting or trapping carried on as a business.

Activities undertaken otherwise in relation to core agricultural activities must be undertaken to produce agricultural goods for sale. Where the activity is related to a core agricultural activity, it must be carried out for purposes that will directly benefit the production of goods for sale.

Commencement: 1 August 1986

Fuel used at residential premises that are used by a person who carries on a core agricultural activity and are located on the property where such an activity occurs will be subject to the rebate where used for:

. providing food and drink;

. providing lighting, heating, air- conditioning, hot water or similar amenities; or

. meeting other domestic requirements (Item 5).

Commencement: 1 July 1995

The main differences in the current and proposed definitions is that under the proposed definition the rebate will only be available for activities connected with agriculture where the activity is undertaken to produce goods for sale and that the premises where fuel subject to the rebate can be used must have a close connection with a core agricultural activity.

Mining

Section 164 of the Customs Act 1901 also contains definitions of `minerals' and `mining operations' and the Act provides that the rebate is available in respect of mining operations.

The definition of minerals will be amended to exclude sand, sandstone, soil, slate, most types of clay, basalt, granite, limestone or water. The effect of the amendment will be to remove the rebate for operations conducted in relation to these minerals (Item 7).

Item 8 will substitute a new definition of mining operations. The main features of the new definition will be the removal of the sweeper clause in connection with mining and the listing of activities that will be subject to the rebate. Main changes to the definition will mean:

. the range of operations included in the definition will be restricted to those listed in the Bill rather than the current sweeper clause which allows the rebate to be be payable where usage is connected with a mining operation;

. the rebate will only be available in respect of the provision of electricity to a mining town where the electricity is necessary to enable the exploration, prospecting or mining of minerals (mining town is defined to be a town constructed by a person engaged in mining operations in an area where there was previously no town and used to house employees but excluding such a town constructed in an area administered by a council);

. fuel used in the rehabilitation of a mining site will be specifically included in the definition of mining operation;

. fuel used for pumping water, the construction and maintenance of roads and the servicing of vehicles and equipment will only be allowed if the activity:

. is conducted for use in the exploration, prospecting or mining of minerals; or the dressing, beneficiation of minerals or ore; or the transport of minerals for dressing or beneficiation;

occurs at the place where operations are carried out, or for pumping water and service of vehicles and equipment, at such a place or an adjacent place; and

except for pumping water, the activity is carried out by the person who carries out the mining or a contractor. For water pumping, the activity must be carried out by the person who carries on the mining operation.

Commencement: 1 August 1986

The definition will also include fuel used in residential premises for the same purposes as described under agriculture.

Commencement: 1 July 1995

Residential Use

Except as noted above in respect to agricultural and mining usage, the rebate will cease to be available for fuel used for residentail purposes. Currently, paragraph 164(1)(b) provides that the rebate applies to fuel used at residential purposes for providing food or drink, lighting, heating, air- conditioning, hot water and other domestic requirements. This provision will be repealed by Item 1 of Schedule 1 so that the only residential usage subject to the rebate will be those connected with agriculture and mining as described above.

Commencement: 1 July 1995

Endnotes

1. 1982- 3 Budget paper No. 1, p. 247.

2. 1995- 6 Budget paper No. 1 , p. 3- 159. While this explanation was offered in respect to agricultural industries, a similar explanation is provided in relation to revenue related to mining and mineral resources (p. 3- 164).

Chris Field (Ph. 06 2772439)

Bills Digest Service 21 June 1995

Parliamentary Research Service

This Digest does not have any legal status. Other sources should be consulted to determine whether the Bill has been enacted and, if so, whether the subsequent Act reflects further amendments.

Commonwealth of Australia 1995.

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Published by the Department of the Parliamentary Library, 1995.