Note 35: Contingent Liabilities and Subsequent Events
Trustpower was successful in its High Court case against Inland Revenue. The Court ruled that Trustpower’s existing tax treatment of feasibility expenditure incurred in the 2006 to 2008 financial years was appropriate and disagreed with Inland Revenue’s view that the resource consents acquired were capital assets.
Inland Revenue has appealed this decision. The date this appeal will be heard by the Appeal Court has not yet been set. Should Inland Revenue be completely successful in its claim for all three years, the resulting liability would give rise to a tax payment of $5,924,000 and interest expense of $2,920,000. Following the statutory disputes process, Inland Revenue has now begun the reassessment of the 2009 and 2010 years, proposing tax payments of $2,632,000 and interest expense of $1,088,000. Based on the principle of the assessment and the proposed reassessments, the Group would need to revise its policy for capitalising the costs of resource consents for tax purposes in the 2011 and future years. This would give rise to a further estimated tax payment of $2,018,000 and interest expense of $314,000 in respect of the 2011 to 2014 years. This would primarily result in a balance sheet adjustment in the financial statements as most resource consents are depreciable intangible property. The impact of these adjustments on the tax expense in the income statement is difficult to estimate but is unlikely to exceed $2,500,000 for all years up to March 2014.
Trustpower has been awarded costs in relation to the High Court case. The parties are unable to agree on the amount and the matter has been referred back to the Court for a decision. This hearing is set to occur on 13 October 2014. The award is likely to be between $640,000 and $1,400,000. Subsequent to balance date the Inland Revenue has paid the undisputed $640,000. The awarding of costs has also been appealed and is therefore contingent on the outcome of the Appeal Court case noted above.
The Group is not aware of any other material contingent liabilities at balance date (2013: nil).
The Group is not aware of any significant events occurring subsequent to balance date that have not been disclosed.