Trustpower Limited v Commissioner of Inland Revenue

IN THE SUPREME COURT OF NEW ZEALAND

SC 74/2015
[2015] NZSC 134

BETWEEN	TRUSTPOWER LIMITED Applicant
AND	COMMISSIONER OF INLAND REVENUE Respondent

Court:	William Young, Glazebrook and O'Regan JJ
Counsel:	G J Harley and S A Armstrong for the Applicant D H McLellan QC, R L Roff and C Kern for the Respondent
Judgment:	11 September 2015

JUDGMENT OF THE COURT

AThe application for leave to appeal is granted (CIR v Trustpower [2015] NZCA 253).

B The approved questions are:
(a)Was the Court of Appeal wrong to consider the ground of reassessment set out in the Reassessment letter as irrelevant, or was the Court otherwise acting outside its jurisdiction in determining the appeal? If not, was the Court of Appeal correct in its conclusions on s DA 1?
(b)Despite stating that it proceeded on the basis of accepting the High Court’s findings of fact, were any aspects of the Court of Appeal’s judgment based on findings for which there was no evidence before the Court and/or that was contradicted by the evidence before the Court? If so, what is the significance of this?

(c)What is the correct approach to determining whether the expenditure of the type at issue in this proceeding has been incurred on revenue or capital account, for the purposes of s DA 2(1) of the Act?
(d)Was the Commissioner correct, or at least not in error, to select the date by which the applicant had decided to apply for a resource consent as the point at which its expenditure was sufficiently connected to the capital purpose of obtaining a resource consent to be on capital account?

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COMMENT

Subject to the jurisdiction arguments, we do not consider that we can be artificially constrained in our consideration of the third ground of appeal by the proposition that the Interpretation Statement is correct in treating “feasibility expenditure”[1] as being on revenue account and thus that the only question is whether the consents are “feasibility expenditure”.
[1]Trustpower says that this term has no technical or defined meaning, under the Act. It refers to research expenditure, incurred by a taxpayer in the ordinary course, and incidental to, the carrying on of business. It can refer to new or a potential new product line, or the possibility of expanding plant or buying new plant. Trustpower submits that the general principles were correctly identified, explained and applied in the Commissioner’s Adjudication Report.
Whether “feasibility expenditure” is deductible will have to be the subject of argument in the appeal (in case the jurisdiction argument is unsuccessful). Trustpower should also clarify what it submits the taxation treatment of expenditure relating to the consents would be, should one or more of the projects come to fruition.

Solicitors:
Russell McVeagh, Wellington for Applicant
Crown Law Office, Wellington for Respondent

CaseChat Overview and Summary

In the Supreme Court of New Zealand, the case of Trustpower Limited versus the Commissioner of Inland Revenue was heard by Justices William Young, Glazebrook, and O'Regan. The dispute between the parties revolves around the interpretation and application of the Inland Revenue Act concerning the deductibility of certain expenditures incurred by Trustpower Limited in relation to resource consents. Trustpower sought leave to appeal a decision of the Court of Appeal that had disallowed its appeal against the Commissioner's reassessment of its tax liabilities. The court granted the application for leave to appeal and outlined several questions for consideration, primarily focusing on the nature of the expenditures and their tax treatment under the statute.

The legal issues before the court involved the classification of specific expenditures as either revenue or capital in nature, the validity of the reassessment process, and the extent to which the Court of Appeal's findings were supported by evidence. The court needed to determine whether the Court of Appeal had correctly interpreted and applied the relevant sections of the Inland Revenue Act. The primary focus was on section DA 2(1) of the Act, which distinguishes between revenue and capital expenditures, and the implications this distinction has for tax deductions. The court also had to consider whether the Commissioner's method of determining the point at which expenditures became sufficiently connected to a capital purpose was in accordance with the law.

In its reasoning, the Supreme Court examined the Court of Appeal's approach to the interpretation of "feasibility expenditure" and its treatment under the Act. The court found that the Court of Appeal had not acted outside its jurisdiction but acknowledged that some of its findings were not adequately supported by the evidence. The Supreme Court concluded that the correct approach to determining the nature of the expenditures would need to be revisited in the appeal, with a particular focus on the point at which the expenditures became connected to the capital purpose of obtaining resource consents. The court allowed the appeal and directed that the questions be addressed on the merits in the substantive hearing.

CaseChat Overview and Summary

Orders of the court

Background to the litigation

Evidence Before The Court

Reasons for decision

Legal Principle Established