Trustpower - Supreme Court of New Zealand finds that expenditures contributing to an expansion project but made before a decision to proceed were on capital account

The highest New Zealand court found that approximately NZ$18M of expenditures incurred by a New Zealand power company in getting “resource consents” (re land and water use and discharge permits) for four potential power generation projects were capital expenditures, notwithstanding that, at trial, no decision had yet been made to proceed with the projects (nor had they been abandoned).

Young J stated:

The expenditure on obtaining resource consents… was directly related to specific projects that would be on capital account if they came to fruition. The projects could not proceed without resource consents. Obtaining the consents thus represented tangible progress towards their completion. …

Expenditure which is not directed towards a specific project or which is so preliminary as not to be directed towards the advancement of such a project is likely to be seen as being on revenue account.

Bowater was accepted as authority for the latter proposition, but not for the broader (incorrect in his view) proposition that “expenditure on a capital project which does not result in the acquisition of a capital asset is deductible.”

Neal Armstrong. Summary of Trustpower Limited v. Commissioner of Inland Revenue, [2016] NZSC 91 under s. 18(1)(b) – capital expenditure v. expense – improvements v. running expense.