Trustpower said yesterday it was disappointed with the Supreme Court decision 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 the electricity company had appropriately deducted feasibility expenditure and that certain resource consents acquired were not capital assets.
The Supreme Court yesterday upheld the Court of Appeal judgement which overturned the High Court decisions and disallowed the expenditure claimed by Trustpower as deductible, acting chief financial officer Kevin Palmer said in a statement.
Trustpower previously stated the cost of losing would cut profit by $6.6million.
Deloitte Dunedin tax partner Peter Truman told the Otago Daily Times the Supreme Court had once again backed the Commissioner of Inland Revenue.
"This is a fortress the Highlanders would love to have. The commissioner has a great track record of success in the Supreme Court since it was established to replace the Privy Council as New Zealand's top appeal court.''
The decision would be disappointing to both Trustpower and the wider taxpayer community, but it was not all bad news.
The ruling took steps to reverse some of the controversial aspects of the Court of Appeal decision.
The Court of Appeal decision was widely criticised as it took the position expenditure on analysing generation options to expand an existing business could never be deductible. The expenditure did not satisfy the "general permission'' because it was not incurred while carrying on the existing business.
The Supreme Court wiped out that contention, which was pleasing, Mr Truman said.
The outcome of the decision was that feasibility expenditure might still be deductible but the point at which it stopped being deductible might be earlier than taxpayers had traditionally been assessing it, based on Inland Revenue's own interpretation statement.
"All eyes now turn to Inland Revenue to find out what its next approach will be. While we see this decision as moving the capital-revenue boundary in Inland Revenue's favour, we hope they will continue to respect tax positions taken by taxpayers to date where they have been consistent with Inland Revenue's previous guidance.''
The decision put black-hole expenditure back into the spotlight, Mr Truman said.
Black-hole expenditure was business expenditure for which no tax deduction was allowed. Recent legislative changes had addressed areas where black-hole expenditure occurred, such as the deductibility of costs for listing on the stock exchange and legal and administrative costs incurred in applying for a patent.
However, there were still many areas where black-hole expenditure occurred, such as earthquake strengthening work. The ruling would add to the cases where no deduction was available.
Policy changes would be called for by businesses. It might be time to look to the Australian example where business expenditure not otherwise deductible could be claimed over a five-year period where certain conditions were met, he said.
The judges ordered Trustpower to pay costs of $45,000 and reasonable disbursements to be fixed by the registrar.
The shares fell 0.2% to $8.18 after a trading halt was lifted.
Craigs Investment Partners broker Chris Timms said the Supreme Court decision was not material to the trading of the company, as the issue was previously well disclosed.
