Changi Airport Group loses appeal to get tax break for $273m spent on assets like runways

Source: Straits Times
Article Date: 05 Nov 2024
Author: Samuel Devaraj

Runways, taxiways and aprons at airport are structures, not tools of trade: Judge.

Changi Airport Group (CAG) has lost an appeal to have a tax break for $273 million spent on assets over three years.

In dismissing the appeal, Justice Choo Han Teck said the assets – two runways and various taxiways and aprons at Terminals 1, 2, 3 and 4 of Changi Airport – were structures and not tools of trade.

He added that he did not agree with CAG that the decision made by the Income Tax Board of Review was unreasonable and that it erred in law.

According to a judgment dated Nov 1, CAG, which was formed in 2009, made claims for capital allowances in 2011, 2012 and 2013 for capital expenditure on the assets, amounting to $272,575,162 across the three years.

Capital allowances are deductions claimable for the wear and tear of certain assets.

CAG and the Comptroller of Income Tax agreed on the characteristics of the assets – that is, they were designed to facilitate and ensure the safe landing, taxiing and taking off of aircraft.

But CAG argued that the assets were plants in the definition of the Income Tax Act.

According to the Inland Revenue Authority of Singapore (Iras) website, a plant is the “apparatus with which a person carries on a trade, business or profession”, as opposed to the premises from which it is carried on.

Capital expenditure incurred on the plants can be granted capital allowance.

The Comptroller of Income Tax took the view that the runways, taxiways and aprons were not plants and denied the claims, but did grant CAG other allowances on the basis that they were structures.

CAG appealed against the Comptroller’s assessment before the Income Tax Board of Review, which also found that the assets were not plants.

The appeal was then brought before the High Court.

Justice Choo said he agreed with the board that the basic function of the assets was as structures that allowed for aircraft to traverse and rest.

“Accordingly, it is the premise on which the appellant’s trade occurs, as opposed to an apparatus used for the trade,” he added.

CAG’s lawyer Tan Kay Kheng submitted that the assets should be considered the “very tools of trade” because they were integral to the trading operations of CAG.

But Justice Choo said the focus of the inquiry on the exact operational role of the assets did not extend to how functional or integral they were to CAG’s business.

Mr Tan also said that the assets do not comprise mere tarmac platforms, but provide additional functions such as being navigational instruments, preserving the safety of aircraft, preventing skidding, providing support for aircraft and preventing electric shocks.

Justice Choo said the function of navigation is primarily performed by the aerodrome equipment, including airfield lighting and instrument landing systems, for which capital allowances have been granted.

“(The) functions of prevention of skidding, bearing heavy aircraft load and the prevention of electric shocks are functions which augment the primary function of being a structure on which aircraft may traverse and rest,” he added.

In the appeal, Mr Tan also argued that the Income Tax Board of Review had misapplied certain foreign cases in reaching the conclusion that the assets are not plants.

Justice Choo said he accepts that the cases provide nuances and principles which may assist the court in assessing whether an asset has qualities of a plant.

However, he said the court must be conscious of the ultimate objective of the exercise under Singapore law, which is whether the asset is more appropriately described as “plant” or “building or structure”.

He said: “That is a unique exercise and, indeed, central to our jurisprudence because of the rule of mutual exclusivity between capital allowances for plant/machinery and building/structure.”