Preparatory
work for major infrastructure projects is not tax deductible the Supreme Court
decided when ruling against Trustpower’s claim to deduct $6.56 million spent
obtaining resource consents for proposed generation projects. These are capital costs. Only general overhead business costs
unrelated to any particular project are immediately deductible.
Trustpower has to pay some $15 million for
a decade of tax arrears after losing a tax dispute over the costs of obtaining
land use consents, water permits and water discharge permits for four potential
South Island generation projects. Tax
legislation treats resource consents as capital assets: intangible
property. Trustpower said resource
consents are not capital assets until such time as the taxpayer is “committed”
to a specified project. The Supreme
Court said a commitment test is too subjective.
It is under the taxpayer’s control: board minutes and board papers can
fudge the date of final commitment. By
deferring any “commitment” a taxpayer could claim prior feasibility studies and
set-up costs are deductible expenses.
Trustpower said there is a problem of
wasted costs where resource consents are obtained but a particular project does
not go ahead. The Supreme Court pointed
out these consents can be sold on.
Trustpower did field inquiries about selling consents and technical data
for two proposed wind farms: Kaiwera Downs and Mahinerangi.
Tax legislation in 2007 has allowed some
wasted capital expenditure to be written off for tax purposes. These rules were not in effect for the tax
years Trustpower disputed.
Trustpower
v. Inland Revenue – Supreme Court (27.07.16)
16.115