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An estimated $10 million tax break means the Otago Regional Council's funding for the Forsyth Barr Stadium might only cost ratepayers about $27 million.
In a controversial decision in 2008, the council committed to contribute $37.5 million towards the stadium funded by targeted rates to repay borrowings and special Port Otago dividends.
Council corporate services director Wayne Scott in a report to be considered by the finance and corporate committee tomorrow, was recommending that annual rates for the stadium be held at existing levels and the resulting tax benefits be utilised to reduce the 15-year term of the council's borrowing to fund the stadium contribution, saving a "huge amount of interest".
When the decision to fund the stadium was made, it was on the basis that any tax benefits be maximised, he said.
So the council applied to the Commissioner of Inland Revenue for a private binding ruling that the council's contributions to the Carisbrook Stadium Trust were tax deductible.
"The resulting care in structuring the contribution framework and conditions had led to this successful binding ruling."
The commissioner ruled the council was entitled to a deduction under the Income Tax Act 2007 for the amount of gifts it makes to the trust in the 2010, 2011 and 2012 income years provided the trust applies the amounts to the construction costs of the stadium, Mr Scott said.
"It's a major benefit," he said.
Conditions of the decision included that the regional council did not, and would not, have any ownership interest and the council would not receive any benefit or return from the stadium or trust.
The effect of the deduction would be a cash return over time to the council of 30% of its $37.5 million contribution, given the continued profitability of the Port Otago Group and the availability of assessable income in those years, he said.
The council was eligible for tax deductions because it solely owned Port Otago Group.
Therefore, Port Otago could claim the council's tax losses and pass it on to the council, Mr Scott said.