Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search


Govt moves against Supreme Court 'black hole' tax ruling

Govt moves against surprise Supreme Court 'black hole' tax ruling

By Pattrick Smellie

Sept. 23 (BusinessDesk) - The government confirmed today it will legislate to return the tax deductible status of feasibility study spending after a surprise Supreme Court ruling three years ago up-ended the Inland Revenue Department's advice on the issue.

In the final judgment of a long-running battle between Tauranga-based Trustpower and the IRD, the Supreme Court in 2016 ruled that the cost of feasibility studies should not be treated as a tax-deductible expense, even though the IRD had issued formal guidance that it should be.

The case revolved around Trustpower's attempt to claim $17.7 million in 'black hole' expenses incurred on the resource consent for a windfarm in the South Island, that did not go ahead, as tax-deductible expenses related to examining the feasibility of the abandoned project.

However, the Supreme Court never ruled on that question because it concluded that no feasibility study expenses should be deducted, Trustpower chief financial officer Kevin Palmer told BusinessDesk.

Revenue Minister Stuart Nash announced the change today, along with a decision to allow start-up companies to carry their accumulated losses forward, even if they were bought out or acquired a new majority shareholder.

BusinessDesk inquiries for detail on this latter announcement, which would ascribe value to an asset that companies can currently only exploit if there is no change of control, drew a blank. Nash's office was unable to provide immediate detail, while the IRD communications division was unaware an announcement was being made. A consultation document on the issue is expected later this year.

On the feasibility expenses issue, Nash and Finance Minister Grant Robertson used the costs of a feasibility study for a wind farm as an example of its impact on large businesses.

"A power company wants to build a new wind farm and has three possible sites in mind. It incurs expenditure over a five-year period associated with measuring wind frequency and speeds relevant to the three sites to determine the best place to build the windfarm," the example reads. "Under current rules, the costs relating to the unsuitable sites will not be deductible for tax purposes.

"This might discourage the power company from researching too many sites, which raises the risk of not choosing the best location."

The costs of researching the chosen site can be deducted over time as the wind farm depreciates.

The cost of assessing unsuitable sites will be deductible over five years.

At the time of the Supreme Court judgment, Trustpower said it was "very disappointed" and warned it was likely to result in a significant increase in non-deductible “black hole” expenditure across all industry sectors.

The elecriticity generator-retailer was seeking to overturn a Court of Appeal ruling disallowing the deductions in the 2006, 2007 and 2008 tax years, which cost it around $6.6 million in bottom-line profit.

"Business owners tell us this can deter them from spending money looking at better ways of doing things,” said Robertson. “We’re changing this so businesses can deduct ‘feasibility expenditure’ from their tax bills, including for projects that don’t end up going ahead.

“This is about creating an environment where businesses are encouraged to innovate and become more productive – even if some of these ideas don’t work out."

Qualifying expenditure totalling less than $10,000 would be deductible immediately under the legislation, which is expected to be introduced to Parliament early next year and could be passed in time for the new tax year, starting April 1.

On the loss carry-forward proposal, Nash said changes to the ‘loss continuity rules’ regime should "make it easier for start-ups to attract investment and get off the ground".

"As the rules currently stand, a firm that suffers a loss one year can use that loss to reduce its taxable income in the future, but the rules do not work well for start-ups who are trying to attract new investment."

If control of the company changes, for example by a new shareholder taking a greater than 50 percent shareholding, "these start-ups ... often breach the threshold under which they can continue to use these losses."

“Business and tax experts will be consulted on the proposals later this year, along with a review of the existing R&D tax loss cash-out rules. This is the normal process for tax policy changes,” Nash said.


© Scoop Media

Business Headlines | Sci-Tech Headlines


Maritime NZ: NZ Joins Global Initiative Keeping Ports Open And Freight Moving

New Zealand has joined an international port authorities’ global initiative for safe and efficient movement of goods and shipping during the COVID-19 crisis. World-wide, 56 port authorities have agreed how they will work together facilitating maritime ... More>>


National: National Backs Businesses With $10k JobStart

National will provide a $10,000 cash payment to businesses that hire additional staff as part of our commitment to keeping New Zealanders in jobs, National Party Leader Todd Muller and Finance spokesperson Paul Goldsmith have announced. Our JobStart ... More>>


DIY Law: Government Exempts Some Home Improvements From Costly Consents

Homeowners, builders and DIYers will soon have an easier time making basic home improvements as the Government scraps the need for consents for low-risk building work such as sleep-outs, sheds and carports – allowing the construction sector ... More>>


Media Awards: The New Zealand Herald Named Newspaper Of The Year, Website Of The Year At Voyager Media Awards

The New Zealand Herald has been labelled a “powerhouse news operation” as it claims the two biggest prizes – Newspaper of the Year and Website of the Year – along with many individual awards at the 2020 Voyager Media Awards Website of the ... More>>


ASB Bank: ASB Takes The Lead Again With New Low Home Loan Interest Rate

ASB has moved again to support its customers, cutting a number of home loan rates, including the two-year special rate to a new low of 2.69% p.a. Craig Sims, ASB executive general manager Retail Banking says the reduced rate will be welcome news for many ... More>>


Nathan Hoturoa Gray: The Problems With Testing And Case Statistics For Covid-19

To begin to understand disease transmission in a country requires adequate testing of your population with properly vetted, accurate tests. As the world struggles to find what 'adequate percentage' of the population is necessary, (estimates predict ... More>>


RNZ: Fletcher Building To Lay Off 1000 Staff In New Zealand

The construction company will cut around 10 percent of its workforce as it struggles with the fallout from Covid-19. More>>


Can Pay, Won't Pay: Cashflow Moves Urged

Government Ministers are asking significant private enterprises to adopt prompt payment practices in line with the state sector, as a way to improve cashflow for small businesses. More>>


Gordon Campbell: On Why We Should Legally Protect The Right To Work From Home

For understandable reasons, the media messaging around Level Two has been all about “freedom” and “celebration”, but this is not necessarily going to be a universal experience. When it comes to workplace relations, Level Two is just as likely to ... More>>


Auckland Airport: Thousands Of Kiwis Travelling For Queen’s Birthday Weekend

Confidence in domestic travel is beginning to steadily ramp up, with thousands of Kiwis travelling within New Zealand for Queen’s Birthday.
Nearly 400 flights will be operating to and from Auckland Airport over the long weekend... More>>


Science Media Centre: Understanding 5G Concerns – Expert Q&A

Recent attacks on cell phone towers have brought concerns over the rollout of 5G technology into sharp relief.
While scientific research has consistently shown that the technology does not adversely affect human health, public concerns about its impact have spread around the world, fueled in part by growing misinformation online. The SMC asked experts to comment... More>>


Trade: Record Monthly Surplus As Imports Dive

Imports in April 2020 had their biggest fall since October 2009, resulting in a monthly trade surplus of $1.3 billion, Stats NZ said today. “This is the largest monthly trade surplus on record and the annual goods trade deficit is the lowest ... More>>


Media Blues: Stuff Chief Executive Buys Company For $1

Stuff chief executive Sinead Boucher has purchased Stuff from its Australian owners Nine Entertainment for $1.
The chief executive was returning the company to New Zealand ownership, with the sale is expected to be completed by 31 May.
"Our plan is to transition the ownership of Stuff to give staff a direct stake in the business as shareholders," Boucher said in a statement.... More>>


RNZ: Bar Reopening Night 'much, Much Quieter'

Pubs and bars are reporting a sluggish first day back after the lockdown, with the fear of going out, or perhaps the joy of staying home, thought to be a reason for the low numbers. More>>


Stats NZ: New Zealand’s Population Passes 5 Million

New Zealand's resident population provisionally reached 5 million in March 2020, Stats NZ said today. More>>

NIWA: Seven Weeks Of Clearing The Air Provides Huge Benefits: Scientist

Seven weeks of lockdown has provided evidence of how pollution can vanish overnight with benefits for the environment and individuals, says NIWA air quality scientist Dr Ian Longley. Dr Longley has been monitoring air quality in Auckland, Wellington ... More>>


Government: Milestone In Cash Flow Support To SMEs

A significant package of tax reforms will be pushed through all stages in Parliament today to throw a cash flow lifeline to small businesses. More>>