Land being prepared for primary production

Preamble

1. Land used solely or primarily for primary production purposes may be exempt from land tax under section 65, 66 or 67 of the Land Tax Act 2005 (the Act) (primary production exemption). Section 68 of the Act extends the primary production exemption to land that is being prepared for use primarily for primary production use (the preparatory exemption). 

2. To be eligible for the preparatory exemption, section 68(1) requires the Commissioner of State Revenue (the Commissioner) to be satisfied that the land is being prepared for use primarily for primary production and the land will become exempt under section 65, 66 or 67 within 12 months after the commencement of the preparatory activities. The Commissioner has discretion under section 68(2) to extend the 12-month period for a further 12 months. To claim the exemption under section 68, the owner of the land must apply in writing to the Commissioner as required by section 69 of the Act.

3. The purpose of this Revenue Ruling is to: 

• provide guidance on the activities that constitute preparation in the context of section 68, 
• identify the factors which the Commissioner will consider in exercising his discretion as to whether time should be extended under section 68(2), and
• set out the requisite evidentiary requirements for the exemption. 

For guidance on the operation of sections 65, 66 and 67 of the Act, please refer to Revenue Ruling LTA-010 Exemption for primary production land and Revenue Ruling LTA-011 Primary production exemption for land in urban zone.

4. This ruling is provided as a guide only and is not exhaustive. If your circumstances are not covered in this ruling, please consider applying for a private ruling in accordance with Revenue Ruling GEN-009v3 General Information on Private Rulings.

Ruling

Elements of the relevant type of primary production must be satisfied

5. In seeking the preparatory exemption, a mere indication of some general intention to use land for primary production is insufficient. One or more of the particularised elements in the definition primary production in section 64(1) must be satisfied.  

6. Primary production is defined under section 64(1) to mean:

1. cultivation for the purpose of selling the produce of cultivation (whether in a natural, processed or converted state); or 
2. the maintenance of animals or poultry for the purpose of selling them or their natural increase or bodily produce; or
3. the keeping of bees for the purpose of selling their honey; or 
4. commercial fishing, including the preparation for commercial fishing or the storage or preservation of fish or fishing gear; or
5. the cultivation or propagation for sale of plants, seedlings, mushrooms or orchids.

7. Further, the term ‘primary production’ as defined in section 64(1) cannot be construed as a global dictionary definition of the expression ‘primary production’ in accordance with ordinary English usage. For details on the Commissioner’s interpretation of the key terms and elements relating to the primary production definition, please refer to Revenue Ruling LTA-010.

Section 68 must be read together with the relevant primary production exemption provisions 

8. Another critical factor to the preparatory exemption is the Commissioner being satisfied that the land will become exempt under section 65, 66 or 67 of the Act within 12 months of preparatory activities commencing on the land.  

9. This means that section 68 must be read together with the relevant primary production land (PPL) exemption provision depending on the location of the land. Even if a conclusion could be reached that land was being prepared for use primarily for primary production, evidence is required to support a further conclusion that the land would become exempt under the relevant PPL exemption provision (depending on the location of the land) within 12 months of the preparatory activities commencing. Where there is insufficient or no evidence to support a conclusion that land would become exempt within 12 months, the section 68 exemption cannot apply.

Preparatory activities must be physically conducted on the land 

10. To be eligible for the preparatory exemption, there must be physical activities occurring on the land. Mere intention alone is also insufficient, credible evidence of actual physical use of the land is required

11. Preparatory activities must be in furtherance and/or directly related to the primary production activity that will be conducted on the land. 

12. The common activities undertaken in preparation for primary production are:

1. clearing of land  
2. establishment of fences 
3. construction of fire breaks  
4. planting of wind breaks
5. eradication of noxious weeds or vermin
6. fertilising
7. ploughing
8. topsoil enhancement
9. regeneration of land following salt encroachment, and
10. establishment of dams or irrigation to ensure adequate water supply.

13. If the preparatory activities do not form part of the process of the type of primary production to be undertaken on the land, the preparatory exemption does not apply. The applicant must identify with particularity the actual preparatory work that was done with the object of primary production in mind in relation to the relevant period. In addition, the preparatory exemption will not be granted where the preparatory activities are for an unclear purpose or a purpose other than primary production such as:

1. the construction of a place of residence on the property,
2. the cultivation of plants or trees for experimental or pilot purposes,
3. conducting feasibility studies, 
4. in compliance with requirements of the relevant municipality or statutory obligations (e.g. section 20 of the Catchment and Land Protection Act 1994), or
5. general remediation of the land.

14. Preparation in the sense of arranging for appropriate legal formalities (e.g. signing agreements) cannot not be classified as preparation under section 68. Any preparation must also be directly connected to land - purchasing (e.g. of livestock) or the preparation of documents (e.g. a report) is not sufficient

Factors for determining whether land is being prepared for primary production use

15. In considering when land is being prepared for use primarily for primary production, the Commissioner will look at factors such as:

• whether the preparatory activities were part of a continuous, consistent and unbroken effort leading to the relevant primary production activity,
• whether the preparatory activities have a degree of substance/intensity to them and are not minimal, slight, spasmodic or token, 
•  the degree of proximity in time between the preparatory activities and the actual primary production activities. For example, preparatory activities for cultivation include ploughing, weed eradication, spraying of fertiliser etc.; actual primary production activities for cultivation include planting, sowing, harvesting etc. Claims of land lying fallow, interruption or hiatus are not accepted as preparatory activities because these concepts are based on the premise that proven primary production activity conducted on the land has been interrupted.

16. One or 2 preparatory activities from the list in paragraph 12, without more, are unlikely to be enough to support that land is being prepared for use primarily for primary production. A combination of the activities from the above list and a detailed explanation of their contribution towards the relevant primary production activity that makes that land eligible for the primary production exemption would be required. 

Timing of use 

17. According to section 36(1) of the Act, the taxable status of land is determined as at midnight on 31 December of the year preceding the land tax year (the liability date). This means that the eligibility for the preparatory exemption turns on the character of the land as at that date. To characterise the use of the land as at midnight 31 December, contemporaneous evidence is required of what was happening on the land during the period not too long before and after the liability date. For more details, please refer to Revenue Ruling LTA-010. 

Period of preparation time  

18. Section 68(1)(b) of the Act requires that the land will become exempt under section 65, 66 or 67 within 12 months from the commencement of the preparatory activities. Where a longer period is required, the Commissioner has discretion under section 68(2) of the Act to extend the 12-month period by a further 12 months. A landowner seeking an extension of time under section 68(2), must make an application under section 69 to the Commissioner.

19. Upon receiving an application from the landowner, the Commissioner may consider the following (not exhaustive) in determining whether to grant the time extension:

1. The type of primary production under section 64(1) for which the land will ultimately be used,   
2. The condition/state of the land before the commencement of the preparatory activities, 
3. The details of the specific activities that occurred on the land during the 12-month period and how they correlate or contribute to the specified type of primary production under section 64(1),
4. Detailed explanation supported by objective and contemporaneous evidence as to why an extension of time is necessary,
5. The condition/state of the land after the 12-month period from when preparatory activities commenced,
6. Whether there are any period of non-activity or activities that are not required for the specified type of primary production,
7. Whether there are events outside the landowner's control during the 12-month period referred to in section 68(1)(b), and
8. Any other circumstances which the Commissioner considers appropriate.

Evidentiary requirements – preparatory exemption

20. To claim the preparatory exemption, the landowner must apply to the Commissioner under section 69 and provide all the evidentiary requirements necessary to assist the Commissioner in making a determination. 

21. The types of evidence required include (but are not limited to):

1. The commencement date of the preparation activities and evidence to support that such activities actually commenced on that date,
2. Details and evidence of the primary production activity that will ultimately occur on the land and supporting documents to establish the relevant primary production exemption under the Act, 
3. Details of how the preparatory activities will contribute and lead to the primary production activity, 
4. Site map to clearly indicate areas where preparatory activities have occurred or are occurring, 
5. Reports/letters from subject matter experts/consultants,
6. Financial statements, 
7. Tax invoices and receipts for the physical activities on the land, 
8. Relevant council permits where buildings and structures (e.g. broiler shed) are being constructed on the land,
9. A contemporaneous business plan for the primary production activity, and
10. Any other information/evidence the Commissioner considers relevant.

22. Depending on the specific requirements of the type of primary production or the condition of the land, the Commissioner may take any other factors into account in determining whether the preparatory exemption applies.

Evidentiary requirements – Commissioner’s discretion to extend time

23. To request a time extension under section 68(2), the landowner must apply to the Commissioner under section 69 and provide all the evidentiary requirements necessary to assist the Commissioner in exercising the discretion. The types of evidence that should be provided, as relevant, include (but are not limited to): 

1. Details and evidence of the preparatory activities that had occurred on the land in the previous 12 months and an explanation of how they correlate or contribute to the specified type of primary production under section 64(1) for which land will ultimately be used,
2. Details and evidence of the additional preparatory activities that need to occur in order to facilitate the specified type of primary production under section 64(1) for which the land will ultimately be used, 
3. Details of why these additional preparatory activities could not be completed in the previous 12 months,
4. Photographic evidence of the condition/state of the land before the commencement of the preparatory activities (that can be identified as linked to the land at the relevant time),
5. Photographic evidence of the condition/state of the land at the conclusion of the 12-month period from which preparatory activities commenced (that can be identified as linked to the land at the relevant time),
6. Details of any period of non-activity or activities unrelated to the specified type of primary production,
7. Details of events that were outside the landowner's control (if any) during previous 12-month period and how they prevented the completion of the preparatory activities, and 
8. Any other information/evidence the Commissioner considers relevant.

Onus of proof

24. Ultimately, the landowner bears the onus of proving that their land is eligible for the preparatory exemption. To enable the Commissioner to properly administer the preparatory exemption, the landowner has an obligation to provide all requested documents and information. If another person uses the land, the owner is responsible for obtaining and providing to the Commissioner detailed information about that person's primary production, non-primary production (if any) and preparatory activities on the land. 

25. Similarly, the onus is also on the landowner to prove to the Commissioner's satisfaction as to why an extension of time under section 68(2) is warranted. 

Commissioner of State Revenue

Rulings do not have the force of law. Each decision made by the State Revenue Office is made on the merits of each individual case having regard to any relevant ruling. All rulings must be read subject to Revenue Ruling GEN-001.

This is a draft ruling only, and is not available for publication, nor may it be relied upon by taxation officers, taxpayers or practitioners.