TrustPower Limited v CIR  NZHC 2970
The High Court has decided in favour of a power generation company’s claim to deduct the costs of obtaining resource consents for what the company called its development pipeline. TrustPower kept its generation options open by setting up the possibility of being able to build capacity in a variety of way. It sought and obtained resource consents, often well in advance of any development activity. Indeed there was no assurance that any particular development project would proceed because they were regularly and often reassessed, one against the other.
The argument of the Crown was essentially that the resource consents became assets of the company and so the costs were on capital account and non-deductible. But the Court did not agree and preferred an approach that determined the nature of the expenditure having regard to what it was calculated to effect from a practical and business point of view. On that basis it concluded that obtaining consents was a crucial and integral part of TrustPower’s business and so should be treated as a revenue account expense.
The consents were not related necessarily to particular assets actually created but were part of a process undertaken by the company to advance a number of potential initiatives so that they could then be evaluated as TrustPower considered generation activity alongside the purchase of electricity.
This case does not conclude that the costs of all resource consents are deductible. Those that are linked inevitably to a particular asset or development are likely to be part of the capital costs of that project. The singular facts of TrustPower’s business made the case different because TrustPower was really investing in possibilities which might or might not come to fruition.
A comparison with the treatment of “black hole” expenditure, including feasibility costs, is tempting. That is not usually deductible absent specific legislation. Yet there may be an argument that says by analogy the taxpayer whose business involves the regular and continuing consideration of a range of opportunities could argue that the costs are an ordinary incident of that business and so should be deductible. The impact of the decision in these other areas means it is highly likely to be appealed by Inland Revenue.
© G D Clews, 2013