No Runway Runaway: Depreciation denied

Queenstown Airport Corporation Limited v CIR [2017] NZCA 20

In one of its first decisions for 2017, the Court of Appeal heard and decided the appeal from the High Court decision in the Queenstown Airport case in less than two weeks. Despite having massively scaled up its legal representation (moving to Russell McVeagh, led by David Goddard QC), the airport company crashed and burned again on the issue of depreciation of its Runway End Safety Areas (“RESAs”).

When commenting on the High Court decision last year this author argued that the RESA was an integral part of the runway system for any modern airport and that argument was at the centre of the appeal. However, the Court of Appeal was not attracted to it and a clear distinction was drawn between runways and other elements of a runway system. The Court drew on Civil Aviation definitions, which identify a runway as the space from which an aircraft takes off and lands. While it was accepted that taxi-ways might be regarded as falling within this, the RESA did not. By a slightly different route the Court came to the same conclusion as did the High Court last year.

The distinctions which inform the decision flow from the core requirements of the depreciation regime. Broadly speaking, these are, first, that any asset for which depreciation is claimed must have a value which wanes over its working or design life. Secondly, the starting position with land is that it is not depreciable, because it lacks this characteristic, but there are listed exceptions to the treatment of land, one of which is for runways. The Court could see nothing to suggest that when Parliament had listed runways it meant to include adjunct areas such as RESAs.

Two interesting observations were made by the Court without committing itself to a finding. It noted that a RESA may be more directly part of continuous paved runway construction and that depreciation might apply in such a case, citing Wellington Airport as an example. It seems more than a little incongruous that an airport with space enough to construct a RESA at the end of its runway might be able to depreciate it, while one which, at great expense, has to reclaim space to build the required safety area cannot.

Secondly the Court noted that, despite its finding, the airport company might be able to argue that part of the construction of its RESA, which involved the use of so called “Geogrids”, were retaining walls and so could be depreciable separately from any argument about runways. This was left for the company to raise with Inland Revenue, because it had not been advanced as part of the case.

Engineering evidence which had not been accepted in the High Court’s decision was taken into account by the Court of Appeal. That evidence went to the design life and need for repair of the eastern bank of the RESA, especially the fact that Geogrids used in that bank would need substantial work after about 120 years. That evidence had to be accepted according to the Court, but it did not give the airport company lift off in establishing that the RESA was depreciable as a runway.

© G D Clews 2017


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