Queenstown Airport has lost a dispute with the Inland Revenue Department over whether it should be able to claim depreciation for the cost of constructing its runway end safety area.

Justice Brendan Brown, who heard the case in Wellington's High Court in March, ruled that the IRD was correct in refusing the airport's claim for tax deductions, and awarded costs for two counsel to the IRD.

The runway end safety area (RESA) is an area beyond a runway which is there as a safety zone if a plane undershoots or overruns the runway surface. At the eastern end of Queenstown Airport's runway, there was a steep drop off where the Shotover and Kawarau Rivers merge, so Queenstown Airport built an $8.5 million embankment from the existing cliff for the RESA.

The airport argued it should be able to claim depreciation on the RESA at the eastern end of its international runway for the 2012 and 2013 tax years, and in the future. It wanted to claim between $312,000 and $419,000 per year in depreciation, dependent on whether the RESA qualified as runway or as hardstanding or road. IRD said the area was land, and therefore not depreciable.


Justice Brown said that he couldn't accept the land improvement could qualify as depreciable as it wasn't one of the items listed in Schedule 13 of the Income Tax Amendment Act.

"If a land improvement does not actually come within one of those specified depreciable land improvements it is not open to the taxpayer to contend that, by analogy with some listed items, the land improvement falls within the general purview of Schedule 13," Justice Brown said.

Queenstown Airport's counsel argued the RESA was part of the airport runway, or a road, or a hardstanding, all of which are recognised depreciable land improvements under Schedule 13.

Justice Brown said the RESA didn't qualify as part of the airport runway as it wasn't constructed to the standard required for an airport runway, and a plane can't land or take off from it. The RESA also isn't a hardstanding as it's designed so aircraft will sink into the surface, nor a road, he said.

The judge also ruled that Queenstown Airport had not established that the RESA might reasonably be expected to decline in value, as it is designed to be used infrequently, in the rare event an aircraft undershot or overran the runway.

In its 2015 annual report, the airport said it would cost about $2.7 million in deferred tax liability if it lost the case against the IRD.