Supreme Court knocks back Trustpower's appeal to claim tax deductions on project costs

Wednesday 27th July 2016

Trustpower is "very disappointed" with a Supreme Court ruling dismissing its bid to claim tax deductions on $17.7 million of project costs in a case closely watched by large-scale infrastructure developers.

The country’s top court sided with the Inland Revenue Department, disallowing Trustpower’s appeal to claim tax deductions for the cost of what Trustpower described as “feasibility expenditure” on four potential projects in the South Island, including spending on obtaining resource consents for two wind farms and two hydro schemes.

“The expression ‘feasibility expenditure’ does not fully capture the significance of resource consents and thus the costs incurred in obtaining them,” the judgment, delivered by Justice William Young, said. “Securing the consents amounted to tangible progress towards eventual completion of the projects (which could not be built without them).”

The Tauranga-based company was seeking to overturn a Court of Appeal ruling disallowing the deductions in the 2006, 2007 and 2008 tax years.

The electricity generator and retailer said it's previously stated the cost of losing would cut profit by $6.6 million.

"Trustpower is very disappointed with this result as it overturns what was a well-established practice for the deduction of feasibility expenditure as published by the Inland Revenue Department and is likely to result in a significant increase in non-deductible “black hole” expenditure across all industry sectors," it said in a statement.

Chief Justice Sian Elias and Justices William Young, Susan Glazebrook, Terence Arnold and Mark O’Regan ruled obtaining resources consents “was directly related to specific projects that would be on capital account if they came to fruition” and couldn’t proceed without them. They also held that some spending associated with early stage feasibility assessments may be deductible.

“Expenditure which is not directed towards a specific project or which is so preliminary as not to be directed towards the advancement of such a project is likely to be seen as being on revenue account,” the judgment said.

The judges ordered Trustpower to pay costs of $45,000 and reasonable disbursements to be fixed by the registrar.

The shares fell 0.2 percent to $8.18 after a trading halt was lifted.

BusinessDesk.co.nz

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