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Supreme Court knocks back Trustpower's appeal

Wednesday 27 July 2016 10:57 AM

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

By Paul McBeth

July 27 (BusinessDesk) - The Supreme Court has turned down Trustpower's appeal 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.

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.

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"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 electricity retailer and generator had previously said its forecast exposure for those years was tax payable of $5.9 million and interest of $2.9 million. Adding in later years takes the exposure to a total of $10.6 million plus $4.3 million in interest. The tax payable would largely be an adjustment on the balance sheet unlikely to exceed $2.5 million for all of the years up to March 2015, while the interest cost would be an income statement expense.

Trading in the NZX-listed shares was halted pending the release of today's judgment, and hasn't yet been lifted. The shares last traded at $8.20.

(BusinessDesk)

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