The ability to deduct or depreciate expenditure on a resource consent depends on the type of expenditure, the type of consent and the resulting asset. Different types of expenditure can be incurred on a resource consent.
The income tax act 2007 separates resource consents into two categories:
- “Environmental” consents and
- “Land” consents
Environmental Consent
Environmental consents are consents granted under section 12–15 of the Resource management act and listed in schedule 14 of the income tax act as items of depreciable intangible property. These consents broadly concern resources and the environment.
Land Consent
Land consents broadly concern activities on land and are granted under sections 9 and 11 of the Resource management act. These are not included in schedule 14.
Whether expenditure is a cost of the depreciable resource consent depends on the facts. Case law defines cost as “that which must be given in order to acquire something” (Tasman Forestry Limited v CIR (1999) 19 NZTC 15). A transaction must be viewed in its commercial reality and assistance may be derived from common business practice or accepted accounting practice.
For a resource consent, the cost is effectively restricted to the initial cost of an item of depreciable property. Case law and commercial practice allow set-up costs to get an asset ready to use to be included in the asset’s cost. However, it would be unusual to incur any such expenditure once the period for which the consent has been granted has commenced. Not all expenditure associated with a resource consent will form part of its cost base. For example, an expense may have been incurred as an ordinary incidence of business and is deductible under the general permission, in which case it will not be a cost of the consent. Alternatively, the expenditure may have been incurred on meeting a condition of the consent after the cost of the consent has been fixed, in which case it will not be a cost of the consent.
Example:
For instance, expenditure on legal fees may be expenditure that can be deducted under section DB 62 of the income tax act rather than treated as a cost of the consent. Also, engineering reports may be a cost of the resulting item of plant, rather than a cost of the resource consent.
It is prudent to seek professional advice to understand if your resource consent costs are deductible.
{proforms 1}