The Problem with ‘Black Hole’ and Feasibility Expenditure: Some Suggestions for Reform

New Zealand Journal of Taxation Law and Policy, Vol. 17, No. 1, March 2011

19 Pages Posted: 12 Aug 2011

See all articles by Peggy Lui

Peggy Lui

PricewaterhouseCoopers

Craig Elliffe

University of Auckland - Faculty of Law

Date Written: August 11, 2011

Abstract

Businesses that embark on major capital investments can incur substantial feasibility expenditure. One challenge they may face is that such expenditure although clearly business related is non-deductible. Among tax people this is known as expenditure which has fallen into a tax "black hole". Non-deductibility of feasibility can result in the reluctance of taxpayers to assess the viability of certain capital projects or new product development. Business expenditure on research and development in New Zealand is substantially below the level of the average of the other members of the OECD. One of the reasons for this lamentably low level of expenditure could be this tax problem. This article begins by examining first, what is feasibility expenditure? Secondly, it describes the current rules relating to its deductibility. Lastly, after identifying the particular problem relating to black hole expenditure, the article goes on to suggest specific proposals and recommendations for reform with the objective of seeking to overcome this problem.

Suggested Citation

Lui, Peggy and Elliffe, Craig Macfarlane, The Problem with ‘Black Hole’ and Feasibility Expenditure: Some Suggestions for Reform (August 11, 2011). New Zealand Journal of Taxation Law and Policy, Vol. 17, No. 1, March 2011, Available at SSRN: https://ssrn.com/abstract=1908521

Peggy Lui

PricewaterhouseCoopers ( email )

54 Gill Street
New Plymouth 4310
New Zealand

Craig Macfarlane Elliffe (Contact Author)

University of Auckland - Faculty of Law ( email )

Private Bag 92019
Auckland Mail Centre
Auckland, 1142
New Zealand

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