Trustpower Case

Inland Revenue has won an appeal against Trustpower involving the deductibility of feasibility expenditure.

The Court of Appeal has ruled that $17.7m of costs incurred to investigate and apply for resource consents are non-deductible, even though the costs were incurred before any decision was made to proceed with the project for which they were being acquired.

The Court of Appeal concluded expenditure incurred on possible projects was for the purpose of extending, expanding, or altering Trustpower’s business, and is not part of carrying on its ordinary business activities. On this basis, the expenditure is on capital account and not deductible.

The decision is of concern because it appears to result in all feasibility expenditure incurred to investigate potential capital projects being on capital account (and thus potentially ‘black hole expenditure’ if the project does not proceed). It is contrary to existing case law and Inland Revenue’s own interpretation statement on the matter, which leaves the law in a state of confusion.

Trustpower is to appeal the decision to the Supreme Court, though it is unlikely the outcome will be known until the latter half of 2016. Given the current uncertainty it is hoped that Inland Revenue will issue its view and advice on the decision.

Published Spring 2015.

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