UPDATE: Trustpower mulls taking tax case to Supreme Court

UPDATE: Trustpower mulls taking tax case to Supreme Court

(Updates with Trustpower comment)

By Paul McBeth

June 19 (BusinessDesk) - Trustpower, the electricity generator and retailer controlled by Infratil, is seeking legal advice on whether to challenge today's loss in the Court of Appeal.

The Tauranga-based company said it's disappointed with a decision by Justices Ellen France, Douglas White and Forrest Miller that ruled in the tax department's favour, quashing the High Court decision siding with the power company, and confirming IRD's disallowing of deductions on $17.7 million of feasibility expenditure claimed in the 2006, 2007 and 2008 financial years. The bench remitted back to the High Court the allocation of some spending as capital rather than revenue in relation to the application of four resource consents.

The company is working with its legal team to see whether there are grounds to challenge the ruling in the Supreme Court, it said in a statement. It has 20 business days to make an application.

The power company's 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 $10.6 million plus $4.3 million in interest.

Trustpower said 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. The costs awards weren't able to be quantified, it said.

The disputed expenditure arose from Trustpower taking preliminary steps then applying for and obtaining resource management consents over four potential generation projects in the South Island, being two wind farms and two hydro. The consents covered land use, water permits and discharge permits, and were for fixed periods.

"Determined objectively, there was a sufficient connection between the expenditure and capital," Justice White said in delivering the judgment. "The object of the expenditure was capital even if, as a matter of Trustpower's corporate governance, the financial decision to apply for the resource consents had not been made and that decision was contingent on what the preliminary work might show."

The IRD contended the consents were intangible capital assets, so the spending was capital expenditure and not tax deductible.

"We do not accept Trustpower's submission that the build or buy decision was so intimately connected with the revenue side of the business that the disputed expenditure was on revenue account," the judgment said. "By obtaining resource consents, Trustpower invested unequivocally in capacity, whether or not it was committed at that time to proceed with the build. The investment was inherently capital in nature."

The judges awarded costs on a band B basis to the IRD and quashed the costs order in the High Court.

Trustpower shares were unchanged at $7.70, and have slipped 2.5 percent this year.

(BusinessDesk)

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