Taxman wins on appeal in Trustpower case

Electricity, gas and telecoms utility Trustpower [TPW] has come off second best in a tax dispute after the Court of Appeal ruled in favour of the Inland Revenue over $10.6 million of deductions.

Trustpower had argued its $17.7m of spending on resource consent applications between 2006 and 2008 was immediately deductible, while the IRD maintained the consents were intangible assets so the spending should be capitalised and depreciated over time.

In a ruling delivered this morning, Justices France, White and Miller found in favour of the IRD.

Trustpower released a statement to the stock exchange this afternoon saying it was disappointed in the decision "and will be working with its legal advisers to review the judgment in detail to assess whether there are grounds for seeking leave to appeal to the Supreme Court."

It has 20 business days to decide whether to seek leave to appeal.

Trustpower’s annual report released on May 15 detailed the effect if the IRD was to win the case, saying it would lead to an additional amount owing to the IRD of $10.6m, plus interest of $4.8m.

The amount was based on the overall effects of the decision on the tax years from 2006 to 2015.

“The tax payable would primarily result in a balance sheet adjustment in the financial statements as most resource consents are depreciable intangible property,” it said. “The impact of these adjustments on the tax expense in the income statement is difficult to estimate but is unlikely to exceed $2.5m for all years up to March 2015.”

The expenditure in question related to consents for land use, water permits and discharge consents for four potential generation projects in the South Island, two hydro (Arnold and Wairau) and two wind farms (Kaiwera Downs and Mahinerangi).

Trustpower had contended that the spending was part of feasibility analysis for several of many projects in its development pipeline and was undertaken before it had decided whether to build any of them.

The IRD argued that the spending counted as “depreciable intangible property” under the income Tax Act and so should be held on capital account.

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