Business reporter for the NZ Herald

Businesses in limbo after tax ruling

Trustpower, controlled by Infratil asked the country's highest court to overturn a ruling from the Court of Appeal in the tax department's favour. Photo / NZME
Trustpower, controlled by Infratil asked the country's highest court to overturn a ruling from the Court of Appeal in the tax department's favour. Photo / NZME

Businesses have been left in "limbo-land" in the wake of the Supreme Court ruling in Trustpower's tax dispute, says one expert.

NZX-listed Trustpower, which lost a Supreme Court appeal this morning, said it was "very disappointed" with the result.

The case concerned whether $17.7 million Trustpower spent in applying and getting resource consents for four projects was tax deductible.

Trustpower believed the costs around these resource consents were feasibility expenditure and that it could claim tax deductions.

The projects in question were a hydro scheme at Arnold River on the South Island's west coast, a Southland wind farm, a hydro project on the Wairau River and a wind farm west of Dunedin.

Inland Revenue, however, believed these resource consents were intangible capital assets and what was spent in obtaining them was capital expenditure and therefore not tax deductible.

Trustpower then filed action in 2011 against Inland Revenue and the High Court found in favour of the electricity company.

The Court of Appeal overturned that ruling and sided with the IRD, which had refused to allow Trustpower's tax deductions for 2006, 2007 and 2008.

The Supreme Court today dismissed Trustpower's subsequent challenge and ordered the electricity company pay IRD $45,000 in legal costs.

Although it dismissed the appeal, Deloitte tax partner Greg Haddon says the country's highest court did say some "early stage feasibility assessments may be deductible".

This marked a shift from the Court of Appeal's ruling, which found that all spending looking into the feasibility of capital projects was not tax deductible.

Despite the change, Haddon said the Supreme Court did not clearly define what spending businesses could and couldn't claim deductions on.

"They've left us with a vacuum of uncertainty," Haddon said.

The Deloitte partner said the Government now needed to step in to give business some clarity. Revenue Minister Michael Woodhouse was unable to comment last night.

Trustpower, in its last financial statements, said the Court of Appeal decision would reduce its profit by $6.6m.

Depending on the Supreme Court's view on the deductibility of feasibility expenditure, the company also said it could be liable for further costs but that this was unlikely to exceed $4m.

The company expects to provide an update with its half-year result in November.

"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," the company said.

Its shares were down 1.22 per cent to $8.10.

- NZ Herald

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