Trustpower loses Supreme Court tax dispute

Trustpower [NZX: TPW] says it is “very disappointed” in a Supreme Court decision which unanimously dismissed the company’s appeal in a multi-million dollar tax dispute with the Commissioner of Inland Revenue.

The electricity, gas and telecoms utility had argued $17.7 million of spending on resource consent applications between 2006 and 2008 were immediately deductible.

But the IRD had disallowed the deductions, arguing the consents were intangible assets and the spending should therefore be capitalised and depreciated over time.

The High Court had found in favour of Trustpower, but last June the Court of Appeal sided with IRD.

In March this year the case was taken to the Supreme Court, and in a decision released today the country’s top court has unanimously found in favour of IRD.

Trustpower has also been ordered to pay costs of $45,000.

The company had this morning gone into a trading halt ahead of the decision, in order to "allow the decision to be appropriately released to all investors and allow Trustpower to give its initial assessment of the impact of the decision."

In a press release accompanying the decision, the Supreme Court says it found expenditure on a capital project is generally on capital account.

It says expenditure associated with early stage feasibility assessments, however, may be revenue expenditure and therefore deductible, as is expenditure not directed towards a specific project or which is “so preliminary” such that it is not directed towards the “advancement” of a project.

“The expenditure by Trustpower was on capital account as it was specifically referable to, and associated with tangible progress in respect of, particular capital projects and therefore the expenditure was not deductible because of the capital limitation, despite Trustpower, at the time of the expenditure, not being committed to completion of the projects.”

In a statement this afternoon, Trustpower says it is “very disappointed” with the result.

It overturns what was a well-established practice for the deduction of feasibility expenditure as published by the Inland Revenue Department and is likely to result in a significant increase in non-deductible “black hole” expenditure across all industry sectors.

Trustpower’s latest annual report provides for $10.7 million of tax payable relating to the case, as well as $5.3 million in interest, “should Inland Revenue be completely successful in its case.”

The company also notes a contingent liability provision, which it considered is not likely to exceed $4 million.

“Trustpower expects to provide a more considered view of its most likely position, with its half year results in November 2016.”