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Resource Consents - What is the Tax Treatment?

Inland Revenue issued interpretation statement IS 18/06 Income Tax – Treatment of Costs of Resource Consents on 5 November 2018. This interpretation statement discusses the income tax treatment of resource consents.

There are different types of resource consents under the Resource Management Act 2000 (RMA). However, for tax purposes resource consents can be divided into two groups, land consents and environmental consents, with each group having a different income tax treatment.

Land consents can be characterised as follows:

  • Section 9 of the RMA provides for a restriction on the use of land that contravenes national environmental standards, a regional rule or a district rule.
  • Section 11 of the RMA provides a restriction on subdivisions. Under s 218 of the RMA the definition of subdivision is wider than the common meaning of dividing a section of land into separate titles. For instance, the definition includes the grant of certain leases.
  • Reclamation consents are a subset of ss 12–14 of the RMA consents.

Environmental consents include:

  • Section 12 restricts the use of coastal marine areas.
  • Section 13 restricts certain uses of beds of lakes or rivers.
  • Section 14 provides restrictions relating to water.
  • Sections 15, 15A, and 15B restrict the discharge of contaminants; this includes various scenarios involving discharges, dumping and incineration.

The different natures of the consents affect the tax treatment of the expenditure. In terms of depreciation, environmental consents are items of depreciable intangible property and the expenditure that forms the cost base can be depreciated over the fixed term of the consent.

Land consents are generally of unlimited duration and will not usually be depreciable property. Expenditure on land consents can usually only be depreciated to the extent that the expenditure can be capitalised into the cost of another item of depreciable property. No depreciation deduction is available for any expenditure capitalised into the cost base of land or certain buildings.

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