Kiwi firms in tax limbo after ruling

New Zealand businesses have been left in limbo by a Supreme Court decision on tax deductions.

Electricity provider Trustpower has been involved in a longrunning court fight with the Inland Revenue Department.

It spent $17.7 million investigating and applying for resource consents for four possible new hydro and wind plants.

It claimed the spending was a tax-deductible business cost, because it was part of its strategy to create a pipeline of potential generation projects, which were not necessarily going to go ahead.

When Inland Revenue challenged that interpretation, the High Court ruled in Trustpower’s favour.

But that ruling has since been overturned by the Court of Appeal and now the Supreme Court.

Tax experts say the latest decision has muddied the waters. It has not offered any clear rules on where the line is between taxdeductible spending to determine the feasibility of a project, and nondeductible capital expenditure.

Deloitte tax partner Greg Haddon said the decision was a concern for any New Zealand business that had ambitions to grow.

Any costs incurred in going through the options or working out the best path of progress could potentially now be considered nontax deductible, he said.

‘‘They haven’t given any real certainty on where the line is. At one point they even said, ‘We don’t have to decide where the line is because in this case it’s clearly capital expenditure.’ But some costs could still be deductible.’’