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Retrieving Data

Today the Court of Appeal has released its judgment in relation to a dispute between Trustpower and the Inland Revenue in relation to the tax treatment of feasibility expenditure incurred in the 2006 to 2008 financial years.

Trustpower was successful in a previous High Court case where it was determined that Trustpower had appropriately deducted feasibility expenditure and that certain resource consents acquired were not capital assets.

The Court of Appeal judgment has overturned the High Court determinations and has disallowed the expenditure claimed by Trustpower as deductible for the 2006 – 2008 tax years.

In its audited financial statements for the year ended 31 March 2015 Trustpower disclosed its estimated exposure for the 2006 – 2008 tax years and future years in a contingent liabilities note (Note 25) should the Court of Appeal not rule in Trustpower’s favour.

The forecast exposure as at 31 March 2015, included in the note, is repeated in the table below:

   2006 to 2008  2009 to 2010  2011 to 2015  Total
   $000  $000  $000  $000
 Tax Payable  5,924  2,632  2,074  10,630
 Interest expense  2,920  1,008  314  4,322

The tax payable 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 2015. The interest cost would be an income statement expense.

The Court of Appeal has also quashed $1.2 million of costs awarded to Trustpower by the High Court.

The Court of Appeal has also ordered Trustpower to pay Inland Revenue costs for both the High Court and Court of Appeal cases but these are not able to be quantified at this time.

Trustpower is very disappointed with the Court of Appeal decision and will be working with its legal advisors to review the judgment in detail to assess whether there are grounds for seeking leave to appeal to the Supreme Court. Trustpower has 20 business days to determine whether to make an application for leave to appeal.

Robert Farron