The term 'restoration expenditure' is often used to describe
payments that are capital expenditure and inadmissible for tax
purposes, as well as revenue expenditure that is an allowable
deduction in computing the taxable profits of a business.
For example, in the case of Robert Addie and Sons' Collieries
Ltd v CIR 8TC671 the restoration payment was a capital cost of
acquiring a right to dump debris on the land (see
BIM62060). Similarly, in RTZ Oil and Gas
Ltd v Elliss 61TC132 the provisions for capping the wells, clearing
the sea bed of clutter, and restoring the rig and tankers to serve
their original functions, were capital for tax purposes. As
Vinelott J. noted:
"
All are part of a comprehensive installation
designed to obtain access to and win and transport oil from the
oilfield to onshore facilities." (see
BIM62065).
The term is also used to describe payments that represent
compensation for damaging another person's property. Where no right
over that person's property has been acquired, such 'restoration
payments' are revenue and an allowable deduction for tax purposes,
when incurred in the course of carrying on a business. For example,
compensation paid to surface landowners for damage to
structures/crops caused by subsidence due to mining operations.
This distinction was noted by Justice Rowlatt in Bullcroft
Main Collieries Ltd v O'Grady 17TC93, at page 102:
"
It is conceded on the one hand and, in fact
appears from the Addie's case, that if you buy outright the right
to let down the surface from the surface owners, however you may
describe that right in legal language - if you buy that so that you
can let down the surface without paying anything more, at the
beginning of your operations, that is capital expenditure; you pay
that to enable you to start, really. That is clear. On the other
hand, if you do not make any arrangement of this kind at all and,
as the damage happens, you go to arbitration and you pay the
persons whose property is damaged on the surface each time that you
cause the damage, that, it is admitted, is a deduction and a
revenue expense" (see
BIM62070).
The right to 'let down the surface' of land, or deposit waste
on it, can also be acquired by a payment of rent, as well as by
payment of a capital lump sum. These rental payments can also be
described as 'restoration expenditure' or compensation for surface
damages. For the taxation treatment of such payments see
BIM62035.
