QUEENSTOWN AIRPORT CORPORATION LTD v COMMISSIONER OF INLAND REVENUE [2016] NZHC 1299

QUEENSTOWN AIRPORT CORPORATION LTD v COMMISSIONER OF INLAND REVENUE [2016] NZHC 1299 [15 June 2016]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2015-485-257[2016] NZHC 1299UNDER the Tax Administration Act 1994IN THE MATTER OF the Income Tax Act 2007BETWEEN QUEENSTOWN AIRPORTCORPORATION LIMITEDPlaintiffAND COMMISSIONER OF INLANDREVENUEDefendantHearing: 14-17 March 2016Counsel: M T Lennard, V T J Sullivan and H Saunders for plaintiffP H Courtney, P D Marshall and R N Park for defendantJudgment: 15 June 2016JUDGMENT OF BROWN JTable of ContentsParagraph No.Introduction [1]The anatomy of an aerodrome [6]The RESA requirement [15]The implications of the RESA requirement for Queenstown Airport [19]Depreciable property [22]Relevant ITA provisions [26]The scope of the dispute [31]Are the embankment and the East RESA "land"? [36]Schedule 13 [45]Legislative history – general [45]QAC's broader proposition [52]Is the East RESA within the term "airport runways"? [61]QAC's argument [61]Commissioner's argument [69]"Airport runways": the textual meaning [73]"Airports" and "aerodromes" [76]The evolution of runways [103]"Airport runways" in Schedule 13 [107]Cross-checking against purpose [111]The characteristics of the East RESA [117]Is the embankment within the term "airport runways"? [125]Is the East RESA within the term "hardstanding"? [136]QAC's argument [137]Commissioner's submission [141]Conclusion [144]Is the East RESA within the term "roads"? [147]Might the East RESA reasonably be expected to decline in value? [151]Disposition [166]Introduction[1] The function of a runway end safety area (RESA) beyond the ends of airport runways is to provide a safety zone in the event of an incident during landing or take-off which results in an aircraft undershooting (on landing only) or overrunning (on both landing and take-off) the runway surface.[2] In order to provide a RESA at the eastern end (the East RESA) of the Queenstown Airport runway, where there was a steep drop-off down to the Kawerau/Shotover River delta 45 metres below, the plaintiff (QAC) constructed an engineered fill embarkment out from the existing cliff at a cost in excess of $8.5 million.[3] QAC challenges the decision of the defendant (the Commissioner) declining to allow QAC a deduction for a depreciation loss in the 2012 and 2013 income tax years in relation to the cost of construction of the embarkment to support the East RESA. In substantial part the dispute turns on the meaning of various terms in theIncome Tax Act 2007 (ITA), namely "land", "airport runways", "hardstanding" and "roads".[4] In a statement of issues1 the parties agreed that the determination of the dispute, whether (and if so to what extent and at what rate) QAC is entitled to deductions for depreciation loss based on its cost in constructing the East RESA and embankment, involved the following issues:5.1 Whether under ss DA 1(1)(b) and EE 1 (1) and (2)(b) of the [ITA] [QAC] is allowed deductions for amounts of depreciation loss relating to the relevant identifiable asset.5.2 Whether the relevant identifiable asset is:5.2.1 "Land" (and therefore not depreciable property under s EE 7(a) of the ITA); or5.2.2 "Depreciable property" (under s EE 6 (1)(b)), being one of the depreciable land improvements listed in sch 13 of theITA, namely "airport runways", "hardstanding" and/or"roads", that in normal circumstances might reasonably be· expected to decline in value while it is used or available for1 Filed on 1 February 2016 in accordance with a request in my Minute of 10 December 2015.use in carrying on a business for the purpose of deriving assessable income.5.3 If the Court finds that the relevant asset is "depreciable property", whether for the purpose of calculating depreciation it covers:5.3.1 The entirety of [QAC's] runway system; or5.3.2 The East RESA and embankment.[5] Although QAC tended to refer to the East RESA and the embankment collectively as the East RESA,2 in the interests of clarity this judgment will generally refer to them individually.The anatomy of an aerodrome3[6] The focal point of an aerodrome4 is the runway:Runway means a defined rectangular area on a land aerodrome prepared for the landing and take-off of aircraft:[7] At the take-off end(s) of a runway there may be a stopway:Stopway means a defined rectangular area on the ground at the end of take-off run available prepared as a suitable area in which an aircraft can be stopped in the case of an abandoned take-off:[8] Both the runway and any stopway are contained within an area known as the runway strip:Runway strip means a defined area including the runway, and stopway (if a stopway is provided), that is intended–(1) to reduce the risk of damage to an aircraft running off the runway; and(2) to provide obstacle protection for aircraft flying over the runway strip during take-off or landing operations:2 QAC's position was that the East RESA and the embankment are not two separate assets but an integrated system.3 Unless stated otherwise all definitions in this part are taken from the Civil Aviation Rules made under the Civil Aviation Act 1990.4 Aerodrome–(1) means any defined area of land or water intended or designed to be used either wholly or partly for the landing, departure, and surface movement of aircraft; and(2) includes any buildings, installations, and equipment on or adjacent to any such area used in connection with the aerodrome or its administration:[9] At the take-off end(s) of a runway there will also be an area known as a clearway:Clearway means a defined rectangular area on the ground or water, at the departure end of the runway–(1) under the control of the aerodrome operator; or(2) with the agreement of the authority controlling the clearway–selected or prepared as a suitable area over which an aeroplane may make a portion of its initial climb to a specified height:[10] Aircraft travel on the ground between the runway and other areas of the aerodrome via taxiways.5 Although not defined in the Civil Aviation Rules, CAA Advisory Circular AC 139–6 provides a definition of "taxiway":Taxiway means a defined path on a land aerodrome established for the taxiing of aircraft and intended to provide a link between one part of the aerodrome and another. It includes:(a) aircraft stand taxi lane: A portion of an apron designated as a taxiway and intended to provide access to aircraft stands only; and(b) apron taxiway: A portion of the taxiway system located on an apron and intended to provide a through taxi route across the apron; and(c) rapid-exit taxiway: A taxiway connected to a runway at an acute angle and designed to allow landing aeroplanes to turn off at higher speeds than are achieved on other exit taxiways thereby minimising runway occupancy times.[11] The Circular also contains a definition of "taxiway strip" similar to that forrunway strips:Taxiway strip means an area including a taxiway intended to protect an aircraft operating on the taxiway and to reduce the risk of damage to an aircraft accidentally running off the taxiway.5 The definition of "taxi" is:Taxi means movement of an aircraft on the surface of an aerodrome or on water, excluding take-off and landing, but including, in the case of helicopters, operation over the surface of an aerodrome within a height band associated with ground effect and at speeds associated with air taxiing:[12] Aircraft movements directly related to take-off and landing occur in what is known as the manoeuvring area:Manoeuvring area–(1) means that part of an aerodrome to be used for the take-off and landing of aircraft and for the surface movement of aircraft associated with take-off and landing; but(2) does not include areas set aside for loading, unloading, or maintenance of aircraft:[13] A broader area, which includes the activities of loading and maintenance, is known as the movement area:Movement area means that part of an aerodrome intended to be used for the take-off and landing of aircraft and for the surface movement of aircraft, and includes the manoeuvring area, maintenance areas, and aprons:[14] Apron is defined as:Apron means a defined area on a land aerodrome intended to accommodate aircraft for the purpose of loading or unloading passengers or cargo, refuelling, parking, or maintenance:The RESA requirement[15] In April 1998 the International Civil Aviation Organisation (ICAO) set as a new standard the creation of a minimum 90 metre RESA at each end of airport runways6 used for international flights. That standard was published in the 3rdedition of Annex 14 in July 1999 and implemented in November 1999.[16] That standard was adopted into New Zealand law in October 2006 by an amendment to Part 139.51 of the Civil Aviation Rules which relevantly stated:139.51 Aerodrome design requirements(b) An applicant for the grant of an aerodrome operating certificate must ensure that a runway end safety area that complies with the physical6 Notwithstanding the reference to the end of the airport runway, it was made clear in the particularised requirement that the RESA was to be located at the ends of the runway strip: see [17] below.characteristics prescribed in appendix A.1 is provided at each end of a runway at the aerodrome if–(1) the runway is used for regular air transport services operating to or from New Zealand; A five year compliance period was stipulated.[17] Appendix A stated:Appendix A–Aerodrome physical characteristicsA.1 Physical characteristics for RESA(a) A RESA must extend–(1) to a distance of at least 90 metres from the end of the runway strip, and(2) if practicable–(i) to a distance of at least of at least 240 metres from the end of the runway strip; or(ii) to the greatest distance that is practicable between the 90 metres required in paragraph (a)(1) and the 240 metres required in paragraph (a)(2)(i).(b) The width of a RESA must–(1) be at least twice the width of the associated runway and be positioned symmetrically on either side of the extended centre line of the runway; and(2) where practicable, be equal to the width of the graded portion of the associated runway strip.(c) A RESA must be constructed to–(1) provide a cleared and graded area to reduce the risk of damage to an aeroplane that undershoots or overruns the runway; and(2) where practicable, be clear of any object which might endanger an aeroplane that undershoots or overruns the runway.(d) A RESA must not penetrate the approach or take-off climb surface for the runway.(e) If a RESA has a longitudinal slope–(1) any downward slope must not exceed 5%; and(2) slope changes must be as gradual as practicable; and(3) abrupt changes or sudden reversals of slopes must be avoided.(f) If a RESA has a traverse slope–(1) any upward or downward slope must not exceed 5%; and(2) slope changes must be as gradual as practicable.[18] The figure below (which assumes a runway 45m in width) illustrates the relationships between the runway, the runway strip and the RESAs.7 Any stopways would be in the area of the runway strip between the runway and the RESAs.8The implications of the RESA requirement for Queenstown Airport[19] Although it was possible to provide a 90m long RESA at the west end of the Queenstown Airport runway strip (the West RESA), the east end presented a problem as Mr D S Park9 explained in evidence:6.2 At the eastern end there was a distance of approximately 32m from the end of the seal to the security fence at its closest point. Together with the 52m of seal this provided 84m clear area of which 12m was reserved for a proposed public road.7 The distances indicated on the diagram relating to the runway strip are prescribed in CAA Advisory Circular AC139-6 at paras 3.5.2–3.5.3.8 The layout depicted in the diagram could not accommodate stopways because the runway strip is required to extend 60m beyond both the end of the runway and any stopway.9 An aviation consultant who was a witness called by QAC.6.3 This left 72m of which 60m is classed as runway strip end leaving 12m for RESA, a shortfall of 78m on the 90m required.6.4 This shortfall could only be addressed by either taking some of the existing runway as RESA, in which case it effectively would have reduced the runway length available for aircraft to take-off and land (discussed in more detail shortly), or extending eastwards over the embankment to provide the additional RESA.[20] QAC rejected an option which would have involved converting the last 78m of sealed runway into the East RESA as that would have resulted in a 78m reduction in the runway length available for take-off and landing distances towards the east and for the landing distance towards the west. Instead QAC decided to construct an engineered fill platform over the Shotover River embankment, the fill being compacted and battered to provide a level and stable area for the East RESA which was to be grassed.[21] Construction of the works took place between November 2009 and July 2011. While inevitably journalistic, the following extract from the October 2011 edition of the magazine NZ Airports captures the scale of the project:Compaction, compaction and more compaction was the order of the day. In fact every day since November 2009. This engineering masterpiece had to be gradually attached to a 100ft escarpment to ensure it would stay in place for ever.The base first had to be dug out to create a foundation able to support 1.5 million tonnes of material. A staggering 43,000 truckloads of material were then trucked in at 10 loads per working day hour. This was compacted to tight specifications and the results surveyed every day.The complete RESA face is covered in material to prevent dust rising during final approaches by aircraft and is planted in over 30,000 native shrubs for cosmetic effect and erosion control.To achieve the 90m x 90m square RESA has been a huge engineering task but QAC has done it and the effort put in over a number of years to reach this important milestone ahead of compliance deadlines is acknowledged by the CAA.Chris Read who has been heavily involved in the project concludes:"I always had the vision that a RESA had to be built into the Delta and not claimed out of valuable runway. It has taken many years and over $1m to obtain the various consents before a start could bemade. Hopefully the 90m2 of hard won surface area built up 100ftfrom the river surface will never be used."10Depreciable property[22] The rationale for allowing a deduction for depreciation is that capital assets used in the production of income will eventually wear out and need to be replaced. An allowance for the capital cost of replacement of such assets is set off against eachyear's income over the life of the assets. Land is not considered to be depreciable because it is not generally expected to decline in value.[23] In its February 1991 Tax Accounting Issues discussion paper the Consultative Committee on the Taxation of Income from Capital (known as the Valabh Committee) considered the then definition of depreciable property to be deficient in being too narrowly defined and giving little indication of the applicable criteria.[24] With reference to the absence of explicit criteria, the Committee commented:In general, the approach adopted by the Commissioner has been to exclude from the class of depreciable property those assets that are not used in the derivation of assessable income, as well as those assets that are not expected"systematically" to decline in value over the estimated useful life of the asset. As such, the approach adopted by the Commissioner is broadly consistent with that adopted for financial accounting purposes. Both approaches seek to improve the measurement of income by recognising losses in the value of fixed assets on an accruals rather than a realisation basis, and both seek to restrict depreciation to assets that are expected to fall in value over the ownership period. That is, depreciation is generally limited to those assets whose values are expected to fall over the useful life in accordance with an assumed trend (such as straight line or diminishing value).The Committee concurs with this approach and considers that it should be given legislative effect by modifying the legislation to define explicitly theclass of depreciable property. [25] The Committee proposed an alternative definition:The Committee considers a broader, more explicit, definition of depreciable property would better reflect the scheme of the depreciation regime. We recommend that depreciable property should be explicitly defined in the legislation to:10 Mr Read who was a witness for QAC at the hearing had been employed by QAC during material times as CEO and General Manager – Aeronautical.(a) include all tangible and intangible property used or available for use by a taxpayer in gaining or producing gross revenue, or used or available for use by a taxpayer in carrying on a business for the purposes of gaining or producing gross revenue; and(b) exclude trading stock, land (apart from improvements), financial arrangements, assets not expected to decline in value over their estimated useful life, and assets for which deductions by way of amortisation or depreciation are allowed by other sections of the Act.Those recommendations are reflected in the current legislation.Relevant ITA provisions[26] The general rules in Subpart DA of the ITA contain what is called the"general permission" in relation to deductions for depreciation loss:DA 1 General PermissionNexus with income(1) A person is allowed a deduction for an amount of expenditure or loss (including an amount of depreciation loss) to the extent to which the expenditure or loss is–(a) incurred by them in deriving–(i) their assessable income; or(ii) their excluded income; or(iii) a combination of their assessable income and excluded income; or(b) incurred by them in the course of carrying on a business for the purpose of deriving–(i) their assessable income; or(ii) their excluded income; or(iii) a combination of their assessable income and excluded income.General permission(2) Subsection (1) is called the general permission.[27] Section EE 1 sets out when a taxpayer has a depreciation loss if a person is allowed a deduction under Part D:EE 1 What this subpart doesQuantifying amounts of depreciation loss and depreciation recovery income(1) This subpart–(a) quantifies the amount of depreciation loss for which a person is allowed a deduction if the provisions of Part D (Deductions) are met; and(b) When amount of depreciation loss arises(2) A person has an amount of depreciation loss for an item for an income year if–(a) the person owns an item of property, as described in sections EE 2 to EE 5; and(b) the item is depreciable property, as described in sections EE 6 to EE 8; and(c) the item is used, or is available for use, by the person in the income year; and(d) the amount of depreciation loss is calculated for the person, the item, and the income year under sections EE 9 to EE 11.[28] The definition of "depreciable property" in s YA 1 states:depreciable property is defined in sections EE 6 (What is depreciable property?) and EE 7 (What is not depreciable property?)[29] The relevant parts of those sections state:EE 6 What is depreciable property?Description(1) Depreciable property is property that, in normal circumstances, might reasonably be expected to decline in value while it is used or available for use–(a) in deriving assessable income; or(b) in carrying on a business for the purpose of deriving assessable income.Property: tangible(2) An item of tangible property is depreciable property if–(a) It is described by subsection (1); and(b) It is not described by section EE 7.Property: intangible(3) An item of intangible property is depreciable property if–(a) it is within the definition of depreciable intangible property; and(b) it is described by subsection (1); and(c) it is not described by section EE 7.EE 7 What is not depreciable property?The following property is not depreciable property:(a) land other than depreciable intangible property, although buildings, fixtures, and the improvements listed in schedule 13 (Depreciable land improvements) are depreciable property if they are described by section EE 6(1)[30] Schedule 13 lists the following depreciable land improvements:1. airport runways2. bores and wells3. bridges4. chimneys5. culverts6. dams7. fences8. hardstanding9. reservoirs10. retaining walls11. roads12. spillways13. swimming pools14. tanks15. tunnels16. wharves17. pipes18. purpose-built surfaces for outdoor sports facilitiesThe scope of the dispute[31] On 31 March 2013 and 31 March 2014 respectively, QAC filed its income tax returns for the 2012 and 2013 income years on a conservative basis, namely QAC did not claim depreciation deductions for the East RESA.[32] Instead, QAC issued Notices of Proposed Adjustment (NOPAs) proposing to amend its 2012 and 2013 returns to include amounts of depreciation deduction. The amounts claimed by QAC were as follows:(a) On the basis that the East RESA is runway (the published depreciation rate being 4 per cent on a straight line value basis (SL)):(i) $417,078.34 for the 2012 income year; and(ii) $419,062.66 for the 2013 income year.(b) Alternatively, on the basis that the East RESA is hardstanding or road (the published depreciation rate being 3 per cent SL):(i) $312,808.75 for the 2012 income year; and(ii) $314,296.99 for the 2013 income year.The Commissioner notified QAC that she rejected QAC's NOPAs.[33] Although there was some difference in both sequence and emphasis in theparties' submissions, the central issues concern:(a) the Commissioner's contention that the embankment and the East RESA are "land" and hence not depreciable property;1111 Issue 5.2.1 in [4] above.(b) if (a) is accepted, QAC's contention that the embankment and the East RESA qualify as a depreciable land improvement in Schedule 13, in particular as being an airport runway, hardstanding or a road; and12(c) if (b) is accepted, whether the embankment and the East RESA are property that, in normal circumstances, might reasonably be expected to decline in value while used or available for use.13If the relevant asset is held to be depreciable property, then a further question arises,namely whether that asset is the entirety of QAC's "runway system" or is limited to the embankment and the East RESA.14[34] In his closing submissions, Mr Lennard identified, (and Mrs Courtney confirmed) that the following matters were not in dispute:(a) QAC owned the East RESA at all material times.(b) The East RESA satisfies the "general permission" in s DA 1(1) and s EE 6(1) of the ITA, which depends on whether the expenditure on the East RESA was incurred by QAC in the course of carrying on a business for the purposes of deriving its assessable income.(c) Any depreciation loss incurred on the East RESA has a nexus withQAC's income earning process.(d) QAC incurred the costs listed at para 8 of the Amended Statement of Claim in the construction of the East RESA.(e) That East RESA is part of what is considered in the Industry as the"runway system".12 Issue 5.2.2 in [4] above.13 Issue 5.2.2 in [4] above.14 Issue 5.3 in [4] above.[35] The parties were also in accord that the relevant provisions of the ITA were to be purposively construed in the same manner as any other statute.15 The approach to be followed is as explained in Commerce Commission v Fonterra Co-operative Group Ltd:16[22] It is necessary to bear in mind that s 5 of the Interpretation Act 1999 makes text and purpose the key drivers of statutory interpretation. The meaning of an enactment must be ascertained from its text and in the light of its purpose. Even if the meaning of the text may appear plain in isolation of purpose, that meaning should always be cross-checked against purpose in order to observe the dual requirements of s 5. In determining purpose the Court must obviously have regard to both the immediate and the general legislative context. Of relevance too may be the social, commercial or other objective of the enactment.Are the embankment and the East RESA "land"?[36] Although the question, whether the embankment and the East RESAconstituted "land", was recognised as a discrete point in the agreed statement of issues,17 by the end of the hearing it appeared that QAC did not contest this point.QAC's closing submissions addressed the matter in this fashion:2.2 [QAC] submits that the Commissioner is wrong to say that whether the East RESA is or is not land is at all determinative:2.2.1 The clear scheme of the [ITA] is that bare land, in and of itself, is not depreciable property because it does not decline in value.2.2.2 However, the ITA also recognises that although a "land improvement" is "land" it is depreciable property if it comesunder schedule 13 and meets the requirements of s EE6(1). This is made clear in the 2008 Bill which led to the addition of the last two schedule items. The Commentary on that Bill states in relation to schedule 13 (emphasis added):Under existing tax law, land is not generally considered to be depreciable property. However,certain improvements to the land, that in a legal sense become part of the land, do depreciate over a reasonably easily determinable period. Not allowing depreciation deductions on these improvements may discourage investment in making improvements to land.15 Terminals (NZ) Ltd v Comptroller of Customs [2013] NZSC 139, [2014] 1 NZLR 121 at [39].16 Commerce Commission v Fonterra Co-operative Group Ltd [2007] NZSC 36, [2007] 3 NZLR 767.17 At [4] above.2.2.3 Therefore, a schedule 13 land improvement will both be land and depreciable.(emphasis in submission)[37] QAC identified the real question as being whether for the purposes of the ITA the East RESA is a "land improvement". That phrase is not a term defined in theITA.[38] However I apprehend that the Commissioner's objective in that part of hersubmissions was to establish that the embankment was land of the same fundamental nature as the landform underlying the airport to which the embankment had been added. While it appears to be not in dispute that the embankment constitutes "land"within s EE7(a), it is nevertheless desirable to note the Commissioner's argument and my view on it.[39] The Commissioner's principal contention was that the embankment is landbecause it is permanently annexed to the underlying land area and forms an integral part of it. On the issue of annexation the Commissioner draws attention to the general principle that land includes items annexed to the land: "quicquid plantatur solo, solo, credit" (whatever is affixed to the soil belongs to the soil). Chattels thatare attached to land become part of the land itself, depending on (a) the degree of annexation and (b) the object of annexation.[40] The Commissioner drew attention to the discussion of annexation in Land Law in New Zealand:186.038 The purpose of annexationThe most important element in deciding whether an item has become a fixture is the purpose with which it was brought on to the land. If it was for the permanent and substantial improvement of the land or building, the item is a fixture; but if it was for a temporary purpose or for the more complete enjoyment and use of it as a chattel, then it remains a chattel. The degree of annexation and the damage that would be caused to the land or building by the removal of the item may assist in determining the purpose of the annexation.18 Hinde McMorland & Sim Land Law in New Zealand (10th ed, LexisNexis, Wellington, 2010).The prima facie conclusion drawn from whether there is any annexation or not may be strengthened by a consideration of the purpose of the annexation or may be rebutted by it. The purpose of the annexation is to be considered objectively.[41] On the Commissioner's analysis, the embankment is comprised of compactedengineered fill. The fill comprises materials that would otherwise be considered to be land – indeed they were directly sourced from excavated land. Both the amount of fill used and the degree of compaction indicate that the embankment is affixed to the land with a degree of permanence. Mr Read accepted when giving evidence that it was QAC's intention that the embankment would "stay in place forever".[42] There is an air of unreality in characterising the very large amount of compacted engineered fill as either a chattel or a fixture. Instead I have found helpful the analysis of the Court of Appeal in Auckland City Council v Ports of Auckland Ltd in the context of the issue whether floating marina facilities at Westhaven were land and hence rateable property:19[72] Traditionally the test for whether a chattel has become part of the realty of the land it is situated on is expressed as being whether it is a"fixture". In the recent House of Lords decision in Elitestone Ltd v Morris [1997] 2 All ER 513 at p 518 the House moved away from this formulation of the test. The judgment of Lord Lloyd of Berwickexpressed the test in a way which avoided use of the term "fixture".Lord Lloyd of Berwick noted that the legal meaning of that term often did not bear resemblance to its ordinary meaning and that this had the potential to lead to confusion in the application of the test. Instead he proposed a broader formulation namely whether the chattel could properly be said to have become part and parcel of the land. The two main indicators of this will be the degree of annexation and the object of annexation. His speech indicated that each case will depend on its particular facts and that a commonsense approach, consistent with the broad test, must be taken in considering the indicators. Lord Clyde, in a concurring speech affirmed this move away from technical analysis and application ofthe term "fixture" in favour of a return to the original principles ofthis part of the law. The other members of the House of Lords who sat all agreed with both Lord Lloyd of Berwick and Lord Clyde. This indeed is the way the classic statement of the test was expressed by Blackburn J in Holland v Hodgson (1872) LR 7 CP 328 at p 334.19 Auckland City Council v Ports of Auckland Ltd [2000] 3 NZLR 614 (CA).[73] The present case provides an instance of the value of the Elitestoneapproach. It avoids the need to analyse whether a floating pontoonrestrained by an embedded locating pile is a "fixture". In our view itis appropriate to apply Elitestone in New Zealand to establish whether a chattel has become part of realty.[43] Applying the principles in Elitestone I am satisfied that the degree and purpose of the annexation of the embankment, comprised of compacted engineered fill, to the 45m bluff at the end of the runway strip plainly indicate that the embankment (and the East RESA atop it) became part and parcel of QAC's land.[44] The issue then, as QAC identified,20 is whether, despite being "land" in termsof s EE7(a), the embankment and the East RESA qualify as a depreciable land improvement recognised in Schedule 13.Schedule 13Legislative history – general[45] The Commissioner's submissions explained that in December 1991 Cabinet decided that certain agricultural, horticultural, and aquaculture assets should be governed by the general depreciation provisions. In a paper dated 14 August 1992entitled "Depreciation of Land Improvements other than Buildings" Inland Revenue proposed to the Ministers for Finance and Revenue that non-agricultural land improvements should also be subject to the general depreciation provisions. This was to maintain consistency with other sectors of the economy as, while land did not depreciate, changes effected on the land could do so and accordingly they should be depreciable. It was also considered incorrect to allow only buildings, but no other improvements, to be depreciated.[46] The 1992 paper recorded the background in this way:8. Under general law anything that is attached to the land becomes part of the land. The effect is that any improvements to or on the land are regarded as part of the land and receive the same treatment for depreciation purposes as the land. Section 108 of the [Income Tax Act 1976] has in the past denied a deduction for depreciation of land (and land improvements) but permitted a deduction to the extent that the improvements could be classified as premises. Assets such as20 At [37] above.buildings and airport runways qualified for depreciation purposes as"premises". The repairs and maintenance of all improvements were,however, deductible.[47] The paper further stated:16. To ensure equitable treatment to all sectors of the economy the treatment of land improvements should be standard across all those sectors. Although land does not in itself depreciate, structures or improvements on the land do and therefore they should be depreciable. This means that a fence should receive the same depreciation treatment whether it was employed in the farming, forestry or manufacturing sectors. Further, there would appear to be no valid reason why buildings alone should be the only land improvement than can be depreciated.17. Land improvements can be broken down into three principal categories. The first is improvements to the land. These are improvements made to the land itself by way of contouring, levelling, draining, excavation, filling, reclaiming, making retaining walls, and so on. The second category is improvements on the land. These are improvements which add to the land by way of a structure or other improvement which is in addition to the land itself, such as fences, dams, cables and bridges. Finally improvements growing in the land such as fruit trees and vines, crops, pastures and shelter belts.[48] While the first category of improvements were considered to be inseparable from the land, in general the second and third categories were viewed as depreciable property, being separately identified assets distinct from the land and subject to loss in value due to wear and tear or obsolescence. However the paper concluded that land improvements which were to be depreciable would be difficult to define. Consequently it was recommended that land improvements should be depreciable to the extent listed in a schedule to the statute. It was further proposed that such a list should be able to be supplemented by way of Order in Council.[49] The new depreciation regime introduced by the Income Tax Amendment Act 1993 included the following exception for "land":‛Depreciable property', in relation to any taxpayer,– (b) Does not include– (ii) Land (excluding buildings and other fixtures and such improvements as are listed in the Twenty-firstSchedule to this Act): The Twenty-first Schedule listed as depreciable land improvements the items which comprise items 1 to 16 in the current Schedule 13.21 Items 17 and 18 in Schedule 13 were added in 2008 as noted in Mr Lennard's submission.22[50] It is not apparent whence the various items in Schedule 13 were originally derived. Several of them were contained in the Thirteenth Schedule (expenditure on land improvements) introduced by the Income Tax Amendment Act (No 4) 1986, namely: bores, wells, bridges, culverts, dams, fences, roads and tanks. The parts of the Thirteenth Schedule relating to farming and agriculture and forestry included the construction of aeroplane landing strips.23[51] I further note that, in addition to some of the items in the Thirteenth Schedule, there is also reference in the Second Schedule of the Earthquake Commission Act 1993 (ECA) to tunnel, reservoir, swimming pool and wharf. However the original source of the references to chimneys, hardstanding, retaining walls24 and spillways remains a mystery.QAC's broader proposition[52] QAC prefaced its submissions specific to items 1, 8 and 11 of Schedule 13 with a more general submission which focused on Schedule 13 in its entirety.[53] QAC submitted that the legislative history relied on by the Commissioner reflected that Schedule 13 was intended to identify a wide list of assets which would qualify as land improvements. Noting that the Brash Committee had considered that most land improvements should be depreciable, QAC drew attention to the statement in the 1992 Inland Revenue paper that:2511. The Committee considered that in practice there would be very few investments in land improvement which could not be depreciable. The Committee suggested land contouring as the only example of a virtually permanent, and therefore non-depreciable, investment in land improvement.21 At [30] above.22 At [36] above.23 To facilitate aerial topdressing of the land or disease control work or fire fighting on the land.24 Retaining walls are referred to in the body of the ECA.25 At [45] above.[54] Pointing to that feature as distinguishing the West RESA from the East RESA, QAC observed that the West RESA involved land contouring and reshaping. It was for that reason that QAC accepted that the West RESA was not depreciable property although individual assets on it, such as the jet blast fence and the retaining wall (which perform a different function to the runway system), were depreciable.[55] QAC then submitted that amendments to Schedule 13 since its introduction also reflected the core principle that taxpayers should be permitted a depreciation deduction for most land improvements, making reference again to the commentary to the Bill to the effect that not allowing depreciation deductions on such improvements may discourage investment in making improvements to land.26[56] Consequently it was QAC's submission that the East RESA should comewithin the ambit of Schedule 13 because:(a) it is a highly engineered and expensive asset that was required by the Civil Aviation Rules to make airports in New Zealand safer and was required in order for Queenstown to continue operating as an international airport allowing increased tourism into Queenstown;(b) it is consistent with the policy underlying Schedule 13 that most land improvements will be depreciable property; and(c) it is a land improvement similar to the categories of assets listed in Schedule 13 and is consistent with reservoirs, dams, bridges and tunnels.[57] QAC's submission on this issue concluded with the proposition that, consistent with the principles of interpretation of tax statutes,27 a purposive approach to the ambit of Schedule 13 assets is mandated, and that to come within Schedule 13 will depend on the context in which the land improvement is made and the particular function it is designed to achieve.26 At [36] above.27 Being the same as for other statutes: refer Terminals (NZ) Ltd v Comptroller of Customs, above n 15.[58] Plainly a purposive approach is to be adopted to the consideration of individual items which appear in Schedule 13. For example, an expansive approachto the word "roads" may be appropriate so as to include "street", possibly "drive"and possibly even "path", all of which appear in item 10 of the Second Schedule of the ECA.[59] However I am unable to accept that, beyond the ambit of the individual listed items themselves, Schedule 13 has a penumbra of meaning such that a land improvement could qualify as depreciable property even though it did not in fact come within any one of the 18 listed items purposively construed. In my view it is not sufficient for such a land improvement to be "similar to" or "consistent with"(say) reservoirs, dams, bridges and tunnels.[60] If a land improvement does not actually come within one of those specified depreciable land improvements it is not open to a taxpayer to contend that, by analogy with some listed items, the land improvement falls within the general purview of Schedule 13. To put the point somewhat differently, it is not the function of the Court to recognise additional new items in Schedule 13. The proper mode of extension of the Schedule 13 list is by legislation as demonstrated by the inclusion of items 17 and 18 in 2008.Is the East RESA within the term "airport runways"?QAC's argument[61] As QAC's submissions noted, the first item in Schedule 13 is not "runways" but "airport runways", a term which is not defined in the ITA nor, it would seem,elsewhere.[62] QAC contended that the definition of "airport runways" takes on a broadermeaning than merely the paved surface and includes assets that both directly and indirectly assist the taking off or landing of aircraft. Its argument was built on four themes:(a) the ordinary definition of "runway";(b) the particular notion test;(c) expert evidence;(d) the Commissioner's approach to runways, aprons and taxiways.[63] Emphasising that the phrase is to be interpreted in a purposive and functional manner, QAC focused upon the industry-recognised concept28 of a "runway system"which includes runways as well as a number of associated elements. In particular QAC referred to the description by its aviation expert, Mr D Hoskin, of up to nine components of a runway system, namely:Components which are or may be provided and which determine the length available to take off or land aircraft: Clearway; Stopway; Displaced threshold;29 Starter extension;30 and The runway surface which is none of the above.Components which are or may be provided (sometimes required) to ensure safe operation of the runway: Runway strip; RESA; Runway shoulders;31 and Runway turning pads.3228 At [34](e) above.29 Defined in CAA Advisory Circular AC 139-6 to mean a threshold not located at the extremity of a runway.30 Described in CAA Advisory Circular AC 139-6 as permitted to be established where additional takeoff distance, takeoff run or accelerate-stop distance is required but physical limitations do not allow provision of the mandatory runway or strip width.31 An area adjacent to the edge of a runway so prepared as to provide a transition between the runway and the adjacent surface.32 An area provided to facilitate a 180-degree turn of aircraft where the end of the runway is not served by a taxiway or a taxiway turnaround.[64] Mr Hoskin acknowledged that in general the relevant rules and publicationstend to use the word "runway" in isolation as a description of that part of the paved surface which, in any given context, is not part of any of the other components. However he suggested that it would not be correct to assume that this was intendedto be an exhaustive definition of "runway" for two reasons.[65] First he noted that the usage is not precise. The RESA rule requires that the RESA shall extend from "the runway". However the detailed specifications in Appendix A33 require that the RESA extend from the runway strip which is in turn defined as extending 60 metres beyond the end of "the runway".[66] Secondly he explained that the same piece of land, at the same time or depending on circumstances (the direction in which aircraft are operating), may be categorised as different components of a runway system. Consequently he suggested that what, under a functional description, would be "runway" in one setting would not be "runway" in another setting.[67] Mr Lennard developed that point as follows:6.10 Under these definitions, what is "runway" will depend on whichdirection aircraft are operating and, as a result, any of the ninedifferent components may be "runway" at any given time. Indeed, aRESA may well be runway starter extension and used for actual take-off.6.11 It cannot be the case that whether an asset is depreciable property should depend on which direction the wind was blowing from, but this would be the effect of regarding the status of a particular piece of land under the CA Rules as determinative of whether it was"airport runways" under the ITA.6.12 Consequently the Commissioner's submission that a RESA is notpart of an airport runway for the purposes of the ITA becauseaviation standards "designate a RESA to be an area built beyond the end of the runway" is unsupportable, and in fact illustrates theartificiality of taking the CA Rules' usage as determinative of the ambit of the ITA description of the asset. 33 At [17] above.[68] Addressing the question whether the East RESA needed to be paved to be a runway, QAC submitted:(a) the ordinary definitions of runway do not require a paved surface for that surface to be prepared for landing or take-off;(b) there is no legal requirement that a runway must have a paved or bitumen surface. Indeed in reliance on Mr Hoskin's evidence it wassaid that most runways in New Zealand have a grass surface, including the cross-wind grass runway at Queenstown Airport;(c) Public Information Bulletin 17834 which referred to asphalt runways appeared to be responsive to submissions in relation to such surfaces;(d) Schedule 13 does not identify or specify any material, fabric or substance for any of the asset categories;(e) although the East RESA is an earthen structure, earth structures such as dams and reservoirs undeniably come within Schedule 13.Commissioner's argument[69] The Commissioner's response to QAC's "runway system" proposition was that that concept is not a regulatory term but at best an industry term encompassing a range of discrete but associated aerodrome elements, some of which (ie the runway proper) will decline in value while others (eg a clearway which may even be overwater) will not. The Commissioner's argument included the following points:(a) RESAs must be located beyond the end of the runway and the runway strip. Both its positioning (beginning at the end of the runway strip) and its dimensions (twice the width of the runway) can only be determined by first identifying the relevant runway.34 At [94] below.(b) The Advisory Circular makes it clear that RESAs need not be prepared to the same quality as the runway strip, let alone the runway.(c) Queenstown's main runway cannot have maximum longitudinal slope and transverse slopes of 0.8 per cent and 1.5 per cent respectivelywhereas RESAs' permitted slopes of 5 per cent may be up to five times the maximum longitudinal slope and more than three times the maximum transverse slope.(d) Whereas a runway is "prepared for the landing and take-off ofaircraft", RESAs are provided primarily to reduce the risk of damageto an aeroplane that undershoots or overruns the runway. The East RESA cannot be used for take-off or landing, and it is designed to slow down an aeroplane that runs onto it. RESAs have no markings that could assist in a plane landing safely; while a runway is required to have markings.(e) When calculating the take-off run available for an aircraft and the landing distance available reference is only made to the length of therunway. Other elements of the "runway system", as defined by the plaintiff, are not included.(f) RESAs are expected to be used very rarely (if ever) and are not subject to wear and tear. The main runway of Queenstown Airport, by contrast, is subject to jet aircraft taking off from, and landing on, it over 8,000 times each year.(g) The East RESA is covered in grassed topsoil, which a jet aeroplane would be expected to sink into. This grass surface is considered to have an indefinite life span (assuming minor maintenance). The main runway at Queenstown Airport, by contrast, is required (because of the aircraft using it) to have a hard and strong pavement made of bitumen or concrete. The bitumen surface of the runway pavement will, on Mr Read's evidence, require replacement every 5–10 years, atconsiderable cost ($10 million); with replacement of the underlying base course required at much greater intervals.(h) The expected maintenance costs for the East RESA and the main runway are significantly different. For the two years following the completion of the embankment – prior to the establishment of vegetation and when the risk of erosion is at its greatest – only $19,032 was set aside for maintenance. By contrast, approximately $500,000 is spent on runway maintenance during each 5–10 year lifecycle.[70] The Commissioner sought to align her position with the policy said to underlie depreciation deductions in this way:Further, the physical characteristics and function of the East RESA are not consistent with the apparent reasoning behind the policy decision to allow a deduction for depreciation loss relating to land improvements, namely to allow a deduction relating to improvements on the land that are separately identifiable assets distinct from the land and subject to loss in value due to wear and tear. They are also at odds with the calculation of the deductible depreciation loss for an airport runway, which is based on the useful life of the runway asphalt. As discussed, the East RESA is only covered in top soil and grass.Advisory Circular AC 139–6 states that a RESA should be prepared or constructed to reduce the risk of damage to an aircraft, enhance deceleration, and facilitate the movement of rescue and fire fighting vehicles. By contrast, a runway must be capable of withstanding the traffic of aeroplanes it is intended to serve. A runway that serves jet aircraft must thus be able to withstand regular impact from heavy loads, heat from friction, and effect of jet blast, and withstand erosion.[71] Two aspects of QAC's conduct in expressly distinguishing between the EastRESA and the main runway were also relied upon by the Commissioner. First, the embankment was insured as an asset distinct from the runway, apron and taxiways.QAC's insurance broker had confirmed that: that the earthworks will be one contract – value $13-$15m. He has also confirmed the RESA will not meet the runway at all and that the structure could not be considered a runway, taxiway, apron or stop bank. Therefore there is no insured asset connected to the works.[72] Secondly, following construction the embankment and the East RESA werenot considered for valuation purposes to be part of QAC's runway assets, all ofwhich had identifiable pavements."Airport runways": the textual meaning[73] Because it comprises a combination of the words "run" and "way", it is unsurprising that there are multiple usages of the word "runway". The New ShorterOxford English Dictionary35 includes the following definitions:(a) a track made by an animal, specifically a deer, especially one made to a watering-place;(b) a raised (sloping or horizontal) ramp or gangway, especially a projecting platform in a theatre, etc a catwalk;36(c) a groove in which something slides, specifically (a) a groove in the casing of a sash-window; (b) an incline down which logs are slid;(d) a specially prepared surface on an airfield along which aircraft take off and land.In the world of sport the word refers both to the path along which a jumper, pole vaulter or javelin thrower runs and to the narrow track in a bowling lane on which balls are returned after they are bowled.[74] It is plain in my view that at least one reason for the use in Schedule 13 of thephrase "airport runway" was to confine the "land" exception to runways in the aviation sense. A more difficult question is whether the use of the "airport" qualifierwas intended to convey some further limitation so as to include only runways which have particular characteristics.35 New Shorter Oxford English Dictionary (4th edition Oxford, University Press, Oxford, 1993).36 Exemplified in the television reality show "Project Runway".[75] Noting that the definition of "runway" refers to a defined area on a landaerodrome, the plaintiff's opening submissions stated:However, the definition of aerodrome is any area defined – even in part – for aircraft movement and hence is much wider than the relatively dedicated and specialised concept of "airport".However no authority was cited in support of the specialised concept proposition."Airports" and "aerodromes"[76] The early legislation relating to the New Zealand aviation industry utilisedthe term "aerodrome" to describe places where aircraft could operate from. However, as the statutory review below reveals, over time there appears to have beena migration to the term "airport".[77] The Local Authorities Empowering (Aviation Encouragement) Act 1929made provision for the recognition of "aviation authorities" and empowered certainclasses of local authorities to establish and maintain aerodromes and to make charges for their use by aviators and for admission by the public. The original definition37 of aerodrome in that statute was:"Aerodrome" includes a landing place for aircraft, whether or not such landing place has any buildings or other equipment thereon.[78] The Air Navigation Act 1931,38 which gave effect to the Convention for regulating Air Navigation39 contained a different definition.40 It conferred the power to make regulations for the licensing, inspection and regulation of aerodromes. The Air Navigation Regulations 193341 contained a definition of "landing area" asmeaning that part of an aerodrome which was reserved for departures and landing of aircraft.4237 A definition in the same terms as that in the Civil Aviation Regulations 1953 (see [81] below) was substituted in 1960.38 It replaced the Aviation Act 1918 which simply used the phrase "prescribed landing-place".39 Signed in Paris on 13 October 1919.40 "Aerodrome" means any definite and limited ground or water area intended to be used, eitherwholly or in part, for the landing or departure of aircraft.41 The definition of "aerodrome" in the 1933 Regulations expanded on the statutory definition by including before the word "either" the words "and capable of being used".42 Schedule IV, clause 1(e).[79] The 1931 Act was replaced by the Civil Aviation Act 1948, which gave effect to the Convention on International Civil Aviation signed on 7 December 1944 and provided a more detailed definition:"Aerodrome" means any area of land or water normally used for the taking off, landing, or alighting of aircraft, and includes any buildings or installations on or adjacent to any such area used in connection with the aerodrome or its administration:[80] Although the Convention itself employed the word "airport", theinternational standards and recommended practices adopted by the International Civil Aviation Organisation (ICAO) pursuant to article 37 of the Convention used theword "aerodrome". Like its predecessor, the regulation-making provision in s 3 of the 1948 Act continued to employ the term "aerodrome":(a) For the licensing, inspection, and regulation of aerodromes, for access to, or for prohibiting or controlling access to, aerodromes and places where aircraft have landed, for access to factories for the purpose of inspecting work therein carried on in relation to aircraft, or parts thereof, or aviation equipment, and for prohibiting or regulating the use of unlicensed aerodromes:[81] The Civil Aviation Regulations 1953 contained a slightly different definitionof "aerodrome":'Aerodrome' means any defined area of land or water intended or designedto be used either wholly or partly for the landing, departure, movement, and servicing of aircraft; and includes any buildings, installations, and equipment on or adjacent to any such area used in connection with the aerodrome or its administration:That definition was substituted for the original definition in the 1948 Act by s 2(1) of the Civil Aviation Amendment Act 1955. That definition was repeated in the Civil Aviation Act 1964 and essentially the same definition43 appeared in the Civil Aviation Act 1990.[82] Part IX of the 1953 Regulations provided for the licensing of aerodromes. Aerodrome licences were classified as either public or private licences. Although not at that time defined terms, they were described in reg 185 as follows:43 Instead of "movement, and servicing" the definition referred to "surface movement".(a) Public aerodrome licence – granted in respect of an aerodrome available alike to all aircraft within the limits of the operational conditions notified by the Director in civil aviation safety orders:(b) Private aerodrome licence – granted in respect of an aerodrome available to aircraft of the types or classes specified in the licence and subject to such limitation and restrictions as to users and times of use as may be included in the licence at the request of the licensee.[83] Although the 1948 Act did not contain a definition of "airport", the 1953 Regulations provided the following definition:"Airport" means any aerodrome at which facilities available to the public areprovided for the shelter, servicing, or repair of aircraft, and for receiving or discharging passengers or cargo:However the licensing procedure in Part IX made no reference to airports. The use of the word appears to have been confined to reg 22 (Airport of entry) which provided that any aircraft arriving at or departing from any part of New Zealand wasrequired to land at or depart from a "Customs airport" which was in turn defined tomean an aerodrome designated by the Minister of Customs as a Customs aerodrome.[84] Regulation 187 provided for the imposition of charges approved by the Minister of Civil Aviation for landing and housing aircraft and for the entrance and parking of vehicles. It was repealed by the Civil Aviation Charges Regulations 1954 which introduced provision for the charging of "airport dues" which eventually became known as "airport charges".[85] The Health Amendment Act 1940 extended the quarantine provisions to aircraft whereby part of an aerodrome could be declared to be a place of inspection.44However the Quarantine (Air) Regulations 1952 contained definitions of both"aerodrome" and "airport" in essentially the same terms as in the 1953 Regulations.Regulation 4 of the Quarantine (Air) Regulations 1952 provided that the airports named in the First Schedule were declared to be sanitary aerodromes for the purposes of those regulations. The First Schedule in its original form stated:4544 Section 11(4).45 In due course Wellington Airport and Auckland International Airport were added and the references to Evans Bay and Mechanics Bay Airports were deleted.SANITARY AERODROMESChristchurch AirportEvans Bay AirportMechanics Bay AirportOhakea AirportWhenuapai Airport[86] The Health Act 1956 maintained the use of the aerodrome terminology46 and defined the term as having the same meaning as in the Civil Aviation Act 1948. However the Health (Quarantine) Regulations 1983, which updated and consolidated the 1952 Regulations, utilised both terms. While "Customs airport" was defined tomean an aerodrome specified in the First Schedule, that schedule referred only to airports. It stated:CUSTOMS AIRPORTSAuckland International AirportChristchurch International AirportOhakea AirportWellington International AirportWhenuapai Airport[87] The first reference to "airports" in a statute appears to have been in the Civil Aviation Amendment Act 1962 which provided for the making of regulations providing for the sale of liquor at "international airports". That term was defined in s 4A(5) to mean any airport specified in the regulations and from which aircraft customarily leave New Zealand for places beyond New Zealand.[88] The Customs (Aircraft) Regulations 193547 had introduced the concept of"Customs aerodromes" where aircraft were required to land when arriving in New Zealand for the first time in any journey. That terminology was maintained in the Customs Regulations 1959. However, while the Customs Act 1966 contained the same definition of aerodrome as the Civil Aviation Act 1964, it introduced the phrase"Customs airport" which was defined to mean any aerodrome appointed as aCustoms airport under s 30 of that Act.46 Sections 96(2)(b), 103(1) and 112(3).47 Which contained a definition of aerodrome the same as that in the Air Navigation Regulations 1933.[89] The Immigration Act 1987 defined "Customs airport" to have the same meaning as in the Customs Act 1966. It was replaced by the Immigration Act 2009which contained a definition of "airport" as having the same meaning as in theAirport Authorities Act 1966.[90] The Airport Authorities Act 1966, which consolidated and amended the 1929 Act, introduced the term "airport authority" which was defined to mean a localauthority authorised under that Act to establish, maintain, operate or manage anairport. The definition of "airport", which was similar to the definition of aerodromein the Civil Aviation Regulations 1953, stated:"Airport" means any defined area of land or water intended or designed to beused either wholly or partly for the landing, departure, movement, or servicing of aircraft; and includes any other area declared by the Minister to be part of the airport, and also includes any buildings, installations, and equipment on or adjacent to any such area used in connection with the airport or its administration:[91] The 1966 Act conferred additional powers on airport authorities including the power to operate or manage any airport as a commercial undertaking and for that purpose to establish at airports refreshment rooms, bookstalls, booking offices, travel agencies and such other facilities as might be considered necessary.[92] The first explicit recognition of airports in the income tax legislation appeared in the Income Tax Amendment Act 1986 which introduced s 197A. Itspurpose was to bring "airport operators"48 into the tax system which was achieved by deeming an airport operator to be a company whose activities were a business."Airport" was defined to have the same meaning as in the Airport Authorities Act and the definition of "airport assets" included any asset owned by any person for the purposes of a depreciation sinking fund in respect of an airport asset as defined. Essentially similar provisions were included in subsequent legislation.4948 "Airport operator" was defined to mean the Crown, acting by and through the Minister of CivilAviation and Meteorological Services, and any local authority that is an airport authority, in their respective capacities as joint venturers pursuant to a joint venture agreement (which term was also defined).49 Income Tax Act 1994, s OC1; Income Tax Act 2004, s OC1; Income Tax Act 2007, s HR5.[93] That the legislature had some appreciation of the scale of expenditure involved in the construction of airport runways was evident from the speech of the then Minister of Finance, the Honourable R O Douglas, on the third reading of the bill:I shall finish by mentioning the taxing of airports. It is clear from their comments that Opposition members do not understand the nature of business. They tried to make some capital by saying they opposed the tax on airports, but they have not really explained why airports are different from any other businesses. Airports are being taxed because they are a business. If they are not taxed it encourages a waste of expenditure and excessexpenditure on airports at the expense of other activities. At one time I was asked to authorise the expenditure of $500,000 to lengthen a particular airport runway. The reason for spending that money was that about 12 times a year a little freight had to be unloaded because of the weather forecast. That did not seem to me to be a reason to spend $500,000.[94] In February 1989 the Inland Revenue Department published its policy on the depreciation of airport runways in Public Information Bulletin 178:BackgroundFrom 1 April 1986 Airport Operators were brought into the tax system as a result of the introduction of s 197A to the Income Tax Act 1976.FactsThe airport runway is the main asset of the airport being significant in both construction and cost. Representations were made to the Department to treat this asset like other business assets and depreciate it.The asphalt runways usually require a thin resealing every 3-4 years to prevent moisture from seeping into, and damaging, the foundation of the runway. A more comprehensive sealing is required at approximately 15 yearly intervals.DecisionThe airport runways may be depreciated at the rate of 2% cost price. The 3-4 yearly thin reseal, and normal day to day repairs are to be treated as repairs and maintenance and are allowable in full as a deduction in the year in which they are incurred.The 15 yearly major reseal is considered to be in the same nature as the original construction cost and should therefore be added to the cost of the runway and depreciated accordingly.[95] Like its predecessors, the Civil Aviation Act 1990 does not contain a definition of airport. Throughout that statute reference is made only to aerodromes with two exceptions: Part 10, which addresses "aerodromes, facilities, and jointventure airports"; and s 96 relating to the sale of liquor at international airports.50The Sale and Supply of Alcohol Act 2012, which amended s 96, contains a definitionof "airport bar". The term airport is neither defined nor used in the Civil Aviation Rules.[96] A more abbreviated definition is contained in the Resource Management Act 1991:Airport means any defined area of land or water intended or designed to be used, whether wholly or partly, for the landing, departure, movement, or servicing of aircraft.[97] The legislative use of both terms continued in relation to the payment of airport charges in the Civil Aviation Charges Regulation (No 2) 1991. Thoseregulations contained definitions of "Airport Authority", "Crown airport" and"Joint-venture airport". A definition of the phrase "Public licensed aerodrome"51was also introduced:an aerodrome in respect of which a public aerodrome licence has been granted under regulation 185 of the Civil Aviation Regulations 1953 and includes a military aerodrome and a civil military aerodrome.[98] That definition was revoked by the Civil Aviation Charges Regulations (No 2) 1991, Amendment No 2 which substituted the phrase "Crown airport or joint venture airport" for "public licensed aerodrome".52 It also consequentiallysubstituted the word "airport" for "aerodrome" in reg 14(1).[99] Clearly there is a significant similarity between the definitions of "airport" in the Airport Authorities Act 1966 and "aerodrome" in the Civil Aviation Rules.Noting that similarity, The Laws of New Zealand53 states that the terms are substantially interchangeable. Indeed in Hororata Concerned Citizens v Canterbury50 The successor to the provision at [87] above.51 See [82] above.52 In reg 14(1) and (2) and 18(1).53 The Laws of New Zealand Aviation (online ed) at [145].Gliding Club Inc54 the Environment Court observed that the Gliding Club, while referred to as an airfield in various portions of the proposed district plan, might fit within the definition of airport in the RMA.55[100] While I recognise that all airports would qualify as aerodromes, I do not consider that the converse is the case, at least in respect of all aerodromes. There is asignificant history of use of the word "airport" as meaning a particular kind ofaerodrome with facilities available to the public and for the receipt and discharge of passengers and cargo.[101] Although "aerodrome" seems to have remained the technical term to describe the activity of an airfield, the term "airport", initially defined in the Quarantine (Air) Regulations 1952 and the Civil Aviation Regulations 1953, gained more frequent usage in the context of larger aerodromes with significant facilities for the public. Thus over time the terms "Customs airport", "airport charges", "international airports" and even "airport bar" appeared in legislation. The 2008 amendment to the Commerce Act 1986 introduced information disclosure regulation in relation to"specified airport services".[102] I recognise that in some situations the use of the two terms may be viewed as synonymous. But I consider that whether or not that will be so is context dependent. In some contexts I consider that Mr Lennard's suggestion,56 that aerodrome is a broader term and airport a more specialised concept, may gain traction.The evolution of runways[103] I turn to consider the meaning in the aviation context of the word "runway". As noted above, the early legislation57 employed the phrase "landing area".Although the term was not defined in either the Civil Aviation Act 1948 or the Civil Aviation Regulations 1953, in the latter there were several references to "runway",including in the context of ground signals:54 Hororata Concerned Citizens v Canterbury Gliding Club Inc [2005] NZRMA 393 at [65].55 At [96] above.56 At [75] above.57 At [78] above.Reg 126(c): A horizontal white dumbbell signal (fig 3) shall indicate that aircraft are required to land or take off on a runway and to taxi on runwaysand taxiways only [104] The fact that not every aerodrome would have a runway was apparent from the amendment to reg 91 by the Civil Aviation Regulations 1953, Amendment No 3 to read:91. (1) The pilot in command of an aircraft operated on or in the vicinity of an aerodrome shall–(c) Unless otherwise instructed by Aerodrome Control–(ii) Land and take off so far as practicable into wind, except at those aerodromes where runways are provided, when landings and take-offs shall be on or parallel to the runways.(d) When landing at land aerodromes where landings are not being made on a runway, leave clear on his left any aircraft which has already landed or is about to land or take off:(e) When taking off from an aerodrome, do so in the direction indicated for take-off, and, at aerodromeswhere take-offs are not being made on a runway, shall leave clear on his left any aircraft which is already taking off or which has taken off:(emphasis added)[105] A further amendment to reg 91 in 1966 introduced the concept of "prepared runways". In material part it provided:91. Aerodrome traffic rules–(2) The pilot in command of an aircraft operating on or in the vicinity of an aerodrome shall also, unless otherwise instructed by any air traffic control unit operating at that aerodrome–(c) At aerodromes where prepared runways are provided, land and take off in accordance with such procedures as may be determined and prescribed by the Director or as otherwise instructed by any air traffic control unit in operation at the aerodrome concerned.(6) Aircraft, after landing on prepared runways, shall be moved clear of the runways as soon as possible and proceed as instructed by any air traffic control unit in operation at the aerodrome concerned.(7) In this regulation the term "prepared runway" means a defined areaon a land aerodrome selected or prepared for the landing and take-off run of aircraft along its length and prescribed as a prepared runway by the Director.That definition was the precursor to the definition of "runway" in the Civil AviationRules58 which refers to an area "prepared" for the landing and take-off of aircraft.[106] The first reference to "runway" in a New Zealand statute appears to havebeen in the definition of "airfield activities" introduced by the 1997 amendment tothe Airport Authorities Act:'Airfield activities' means the activities undertaken (including the facilities and services provided) to enable the landing and take-off of aircraft; and includes–(a) The provision of any one or more of the following:(i) Airfields, runways, taxiways, and parking aprons for aircraft:(ii) Facilities and services for air traffic and parking apron control:(iii) Services to maintain and repair airfields, runways, taxiways,and parking aprons for aircraft: "Airport runways" in Schedule 13[107] In light of that review of the prior use of the individual words, I revert to the question whether the composite term "airport runways", as employed inSchedule 13, was intended to convey something more than simply distinguishing runways in the aviation environment from the use of the term in other contexts.58 At [6] above.[108] The phrase first appeared in the taxation legislation in 199359 by which time the use of the word "airport" was well established in legislation and contemplated areasonably sophisticated public aerodrome providing passenger and cargo services and other facilities. I infer that in selecting that phrase for inclusion in the 1993 depreciation regime the legislature was intending to identify runways comprising paved areas constructed in such a manner as to safely cater for the landing and take off of the kind of aircraft engaged in the delivery of such passenger and cargo services.[109] Runways of that nature would be subject to significant wear and tear from the effects of the landing and taking off of substantial aircraft with significant payloads. They could be expected to require not only regular maintenance but reconstruction from time to time. As such they would be appropriate candidates for a depreciation regime unlike, for example, runways of turf or compacted earth.[110] I consider that such an interpretation of the phrase is lent support by the general characteristics of a number of the other items listed in Schedule 13, namely those whose construction would involve significant alteration of the land surface and which, on construction, would become integrated with the land, in particular bores and wells, culverts, dams, retaining walls and tunnels.Cross-checking against purpose[111] In discerning the meaning of the phrase "airport runways", it has been usefulto explore the legislative history of the two words. Understandably that usage has primarily been in the context of the Civil Aviation legislation. However the pursuit of a purposive interpretation requires the Court to construe the phrase to further the legislative purpose of the ITA.[112] There are two resources which are useful in determining the legislative purposes of Schedule 13 and the inclusion of the item "airport runways" inparticular.59 At [30] above.[113] The first chronologically is the Inland Revenue policy on the depreciation of airport runways contained in Public Information Bulletin 17860 consequent on the introduction of s 197A of the Income Tax Act 1976.61 The rationale for that decision was the significant construction and cost associated with airport runways which were described as the main asset of an airport.[114] The second is the legislative history of the depreciation regime introduced in 1993 noted at [45] to [49] above. It is apparent that the objective was to achieve consistency in the depreciation treatment of improvements to land. Airport runways, which had qualified previously for depreciation purposes as constituting "premises", were included in the list of depreciable land improvements which was the solution adopted to address the difficulty in formulating a satisfactory definition.[115] In combination those materials indicate that airport runways were recognised as assets which, while constructed on the land and thereby in a sense part of the land, represented an improvement to the land at significant cost both at initial construction and at regular intervals in the future. As the commentary on the 2008 Bill noted,62not allowing depreciation deductions could discourage investment in such improvements to land.[116] Hence I consider that the legislative purpose of the depreciability of the various land improvements of the nature described is not only consistent with but also sustains my conclusion as to the textual meaning of the phrase "airport runways".The characteristics of the East RESA[117] A key plank of QAC's argument, that the phrase "airport runways" should beinterpreted in a purposive and functional manner, was that the phrase takes on a broader meaning than merely the paved surface and includes assets that both directly and indirectly assist the taking off or landing of aircraft.60 At [94] above.61 At [92] above.62 At [36] above.[118] Even though a RESA is not part of a runway in a strictly technical aviation sense, being physically separated from the runway by a section of the runway strip and also by a stopway (if present), the point was emphasised that a RESA at each end of the runway strip is a prerequisite for the operation of an aerodrome for regular international air transport services.[119] However the interpretation I have placed on the phrase has the consequence that whether a RESA is to be treated as being part of an airport runway does not turnsimply on "runway" being broadly construed to encompass other components of the"runway system" concept. A RESA could only fall within the phrase as used inSchedule 13 if the RESA was constructed to the standard required for an airport runway.[120] The East RESA is not so constructed. As the Commissioner's submissionsnoted, the East RESA is covered in grassed topsoil and, aside from some minor maintenance, the grass surface is considered to have an indefinite life span. It is not possible for an aircraft to land on or take off from that surface.[121] Consequently my conclusion is that the East RESA does not come within thephrase "airport runways" in Schedule 13 and is not thereby excised from the ambit of "land" in s EE7(a).[122] I recognise the argument that, applying a purposive interpretation to "airport runways", taxiways might come within the phrase assuming that they were suitably constructed. If that were so, then I can further envisage an outcome where, again if suitably constructed, each of a stopway, the 60m of runway strip between a runway proper and a RESA, and some or all of a RESA could come within the phrase purposively construed. Such a possibility could occur if one or more of those features were employed as a starter extension and hence they were appropriately constructed and surfaced to permit the take off of an aircraft.6363 Above n 30.[123] However that is not the present case and I have not heard full argument from the Commissioner on the point. In those circumstances it is not appropriate to express an obiter view.[124] In the event that my conclusion with reference to the East RESA is in error and it were to be accepted that it comprised a part of the airport runway at Queenstown Airport, it is necessary then to consider whether the East RESA includes the embankment which supports it, the cost of which gives rise to the claimed amounts of depreciation.Is the embankment within the term "airport runways"?[125] Earlier I noted QAC's tendency to refer to the East RESA and theembankment collectively as the East RESA.64 In engaging with QAC's statutory interpretation argument, the Commissioner's primary submission did not appear to draw a distinction between the embankment and the East RESA, although the focus of that submission was directed to the particular characteristics of the East RESA. However at the conclusion of the written closing submission the Commissioner stated:111. If the East RESA is not part of an airport runway then it is irrelevant whether an airport runway includes any engineered fill supporting the runway. However, in any event, the Dictionary and the CAARules definitions of "runway" and related items and the PIB itemsuggest that an airport runway is a surface area. In particular:111.1 "Ground" by reference to which "runway" is defined meansthe surface of the earth.111.2 For the purposes of the CAA Rules a "runway" means,essentially, a rectangular area on land prepared for the landing and take-off of aircraft.111.3 The depreciation rate for airport runways is set having regard to the runway asphalt and the repair and resealing of the asphalt.[126] The agreed statement of issues framed the final issue concerning the identityof the relevant asset as a choice between the entirety of QAC's runway system on the one hand and the East RESA and the embankment on the other. QAC's submissions64 At [5] above.on the "identifiable asset test" contended that the East RESA and the embankment are not two separate assets but rather one asset comprising several components, namely the surface layer, the sub-layers, the geogrids, drainage and the engineered fill.[127] Mr Lennard cited the "particular notion test" explained by Kitto J in Lindsay v FCT65 which was applied in New Zealand in Poverty Bay Electric Power Board v Commissioner of Inland Revenue where Blanchard J stated:66Where a tax deduction is claimed for expenditure on property of the taxpayer it is necessary, in order to classify it either as repairs or maintenance or an improvement of a capital nature, first to determine what can fairly be said to have been the subject-matter of the work. What is the totality or entirety of the physical asset which is the subject-matter? There is always a danger of distortion if too large or too small a subject-matter is identified. If a subsidiary part of an asset is regarded as the subject-matter and that part has been replaced, there might be a tendency to classify what has occurred as a matter of capital. That could lead to an absurd result, for example, treating the replacement of a car tyre or a spark plug as a capital improvement when, if the subject-matter is correctly seen as the whole of the motor vehicle, the work is obviously a repair involving a replacement of a mere component, even a vital component and even if an improved or modified version of that component is substituted.[128] Mr Lennard contended that the various components of the asset67 were part of one integrated system which is incapable of separate operation for the following reasons:– The surface layer could not exist if it was not for the sub-layers, geogrids and drainage supporting it.– The engineered fill has no use but for the fact that it holds up the surface layer which provides protection for aircraft over-shooting the runway.– The drainage would not operate effectively but for the fact that the drains are placed on the surface of the East RESA and the drainage pipes lead within the engineered fill.– The geogrids have no use but to reinforce the East RESA.65 Lindsay v FCT (1961) 8 AITR 99 (HCA) at 103.66 Poverty Bay Electric Power Board v Commissioner of Inland Revenue [1999] 2 NZLR 438 (CA) at 445.67 At [126] above.[129] Noting that it had long been established that for depreciation purposes a building includes its foundations, Mr Lennard drew attention to Case R35 before the Taxation Review Authority which proceeded on the basis that foundations were part of the depreciable structure of the building.68 He also made reference to the fact that the Australian provisions provide a capital work deduction for structural improvements.[130] I am unable to accept that the test, for the determination of the scope of appropriate subject matter for the purposes of distinguishing between repairs and maintenance or an improvement of a capital nature, is suitably applied to the analysis which s EE7(a) requires.[131] The object of the use of the conjunction "although" in s EE7(a) is to provide that certain subject matter will constitute depreciable property notwithstanding thatsuch subject matter falls within the category of "land". The exclusion of land fromdepreciable property is thereby qualified by the saving in respect of three categories of subject matter: buildings; fixtures; and the depreciable land improvements listed in Schedule 13. The exclusion is redeemed to that extent and no more.[132] The listed depreciable land improvements comprise structures upon the land (eg chimneys and fences), improvements to the surface of the land (eg roads and swimming pools) or structures which extend beneath the land surface (eg bores and tunnels). As a matter of law they become part of the land by reason of their attachment to it. They are also dependent upon the subsistence of the land beneath and in some instances around them for their existence. But it does not follow that for the purposes of s EE7(a) such dependence and connection cause the underlying land to be treated as being within the ambit of the specified land improvement.[133] Take for example the last item, purpose-built surfaces for outdoor sports facilities. Such surfaces are dependent upon the land form on which they are laid. If laid on existing land, the underlying land is captured by the s EE7(a) exclusion while the purpose-built surface is depreciable.68 Case R35 (1994) 16 NZTC 6, 202.[134] It makes no difference in my view that the land on which the surface is constructed is reclaimed or, as in the present case, comprised of engineered fill annexed to a naturally occurring land form. The underlying land, albeit reclaimed orconstructed, is captured by the "land" exclusion but is not encompassed by thespecified depreciable land improvement. The single integrated system proposition could not be successfully deployed to secure a contrary outcome.[135] Similarly, even if the East RESA itself, which lies atop the embankment, qualifies as one of the specified depreciable land improvements in respect of airport runways (and likewise hardstanding and roads), in my view the underlying embankment, which was constructed to enable the East RESA to be provided, iscaptured by the "land" exclusion.Is the East RESA within the term "hardstanding"?[136] The term "hardstanding" is not defined in the ITA or in the Civil Aviation legislation. Consequently the parties drew attention to a number of dictionary definitions:(a) an area of hard material for a vehicle to stand on when not in use;69(b) ground surfaced with a hard material for parking vehicles on;70(c) a paved, compacted, or otherwise specially prepared surface or area set up for parking and sufficiently strong to be able to withstand aircraft weight. Hardstandings may also be built for specialist or support vehicles as well and are designed to withstand their load.71The plaintiff also noted the definition of "hard" in the Shorter Oxford EnglishDictionary as:69 Shorter Oxford English Dictionary (5th edition, Oxford University Press, Oxford, 2002).70 Concise Oxford English Dictionary (11th edition, revised, Oxford University Press, New York, 2006).71 Kumar, De Remer & Marshall (eds), An illustrated dictionary of aviation (McGraw-Hill, New York 2004).that does not yield to pressure, not easily penetrated, cut or separated into pieces; firm; compact in substance and texture.QAC's argument[137] QAC commenced by referring to the Commissioner's previous comment onthe meaning of hardstanding in an Interpretation Statement on the deductibility of farming expenditure:72It is understood that the rationale behind the reference to hardstanding in Schedule [13] was to provide for areas described as hardstanding within certain industry groups – such areas essentially being concrete or bitumenbased "pads" on the ground, e.g. wharf tarmac, car pads, etc.[138] QAC argued that the grass surface texture of the East RESA did not detract from the strength of the compacted prepared materials beneath it. It noted that the East RESA had been constructed to be resilient with specific durability requirements arising from ICAO specifications. The point was made that if an aircraft which had overrun the paved surface of the runway could not stand on the East RESA then the East RESA would be of limited use in the case of an emergency.[139] Specific attention was drawn to the design documents which provide that the upper surface of the fill is a thick gravel layer designed to provide strength for bearing aircraft, emergency vehicle and service vehicle loads. The final layer of the RESA is made of sandy gravel and is compacted so that it can be bear the static loads of aircraft and emergency vehicles.[140] Countering the Commissioner's argument QAC submitted that the definitiondoes not restrict all hardstanding to be an area for parking. This was said to besupported by the Commissioner's interpretation in IR265 which lists the depreciationrate for taxiways (which are depreciated at the same rate as hardstanding) even though taxiways are not used for parking.72 Inland Revenue "ISOO25:Dairy Farming – Deductibility of Certain Expenditure"(February 2000) at 20.Commissioner's submission[141] The Commissioner first noted that policy documents drafted when the depreciation rate for hardstanding was introduced suggested that hardstanding was intended to cover areas known as such within certain industry groups, such areas essentially being concrete or bitumen-based pads on the ground, for example, wharf tarmac, car pads etc.[142] It was Mr Read's evidence that the airport aprons are hardstanding, being used for the parking of aircraft to allow loading and unloading and, in the case of a commercial airport, usually being paved. The depreciation allowance in respect of airport aprons recognised that as provided in the CAA Advisory Circular AC139/6 slow moving or stationary aircraft place higher stresses on areas such as taxiways and aprons which are therefore required to be constructed in a manner that is at least as strong as the runway they serve.[143] While there are no authorities directly on point, reference was made to anumber of planning decisions recognising the use of "hardstanding" as referring tosealed surfaces or parking areas:(a) In Lynch v Matamata County Council the Planning Tribunal noted that"service roads and hardstanding areas [were] to be formed to thecouncil standards, which includes a sealed surface".73(b) In Roberts v Whangarei District Council the Planning Tribunal notedthat "the hardstanding area in front of the workshop and driveway should be sealed or otherwise surfaced in some suitable material of apermanent kind able to withstand the weight of the appellant's commercial vehicles".74(c) Bunnik v Waikato District Council involved a "hardstanding area for carparking".7573 Lynch v Matamata County Council, PT Hamilton, Decision A45/88, 3 June 1988 at 7.74 Roberts v Whangarei District Council, PT Whangarei, Decision A47/95, 19 May 1995 at 8.75 Bunnik v Waikato District Council, PT Hamilton, Decision A42/96, 24 May 1996 at 2.(d) Brown v Auckland City Council involved "hardstanding surfaces such as carparks, driveways etc".76Conclusion[144] I accept the submission for the Commissioner that one of the functions of hardstanding is to protect the land and allow its continued use in unfavourable circumstances such as high traffic and in locations required to support heavy vehicles carrying cargo or stock. Without paving protection the surface of land used in that way would quickly become deformed and unusable, particularly in wet weather.[145] I agree with the Commissioner's submission that hardstanding refers to anarea that has been paved or surfaced with material that is both strong and hard. Irecognise QAC's contention that the subgrade of the embankment is compacted butas Mr Hoskin acknowledged in cross-examination it is not hardstanding. While a RESA must support the weight of an aircraft in the event of a takeoff or landing incident and must allow access for emergency vehicles, the fact that RESAs are designed so that jet aircraft will sink into their surface is inconsistent with their beingcategorised as "hardstanding".[146] I also consider that if a RESA was to be used for parking aircraft or other vehicles, other than for emergency use, it might reasonably be expected to have a hard surface. However parking is not permitted on the RESA as it must remain"clear of any object which might endanger an aeroplane that undershoots or overrunsa runway".77Is the East RESA within the term "roads"?[147] The term "road" is not defined in the ITA or in the Civil Aviation legislation. The dictionary definitions proffered were:76 Brown v Auckland City Council, EnvC Auckland, Decision W185/96, 12 December 1996 at 2.77 At [17] above.(a) a path or way leading from one place to another, usually one wide enough for vehicles as well as pedestrians and with a specifically prepared surface;78(b) a wide way between places, especially one surfaced for use by vehicles.79[148] QAC submits that the definition of "road" has a wide meaning and includesthe East RESA for three reasons:(a) The surface of the East RESA is purposely designed to facilitate the movement of vehicles across its surface. The East RESA has been designed for emergency vehicles to drive on it.(b) The East RESA contains an access service road specifically designed for vehicles to travel across and which has been used for maintenance of the East RESA, including oversight of erosion and also of the drainage system.(c) Even though the main surface of the East RESA is not sealed, many roads are unsealed, including those which have a surface constructed from gravel or dirt.[149] While denying that the East RESA is in its entirety a road, the Commissioner accepts that the cost of any specific roading to allow for service traffic around the East RESA would, if separately identifiable, be a depreciable land improvement for the purposes of Schedule 13. However her stance is that QAC has not identified the amount spent so as to enable the Commissioner to agree to allow deductions for depreciation loss that is specific to that access service road.[150] I agree that the function of the East RESA is not as a road, save to the extent that it is used as a service access road. Depreciation could only be claimed to the extent of the formed service access road.78 Shorter Oxford English Dictionary, above n 69.79 Concise Oxford Dictionary, above n 70.Might the East RESA reasonably be expected to decline in value?[151] Since it does not qualify as one of the three relevant items in Schedule 13, the East RESA is not depreciable property because it is land within s EE7(a). Consequently it does not satisfy the requirement in s EE6(2)(b) of being "notdescribed by s EE7".[152] Were that conclusion to be in error, then it would be necessary to consider whether, as s EE6(2)(a) requires, the East RESA was described by s EE(1). In view of the matters agreed80 the issue between the parties in this respect was confined to whether the East RESA was property that, in normal circumstances, might reasonably be expected to decline in value while it is used or available for use. The issue having been argued, I record my views on it, albeit succinctly given my conclusion in respect of s EE6(2)(b).[153] So far as the relevant "identifiable asset" is concerned, as will be implicitfrom my conclusion on the question whether the embankment and the East RESA area single asset, I do not accept QAC's broader contention that the identifiable asset comprises the entirety of QAC's runway system. Hence QAC cannot mount its caseon an expectation of a decline in value by reliance on the proposition that the runway system (and certainly the runway proper) undoubtedly declines in value over time and usage. In my view the identifiable asset is no more extensive than the embankment and the East RESA.[154] Turning to the interpretation of s EE6(2)(a), Mr Lennard commenced by making the point that there is no definition in the ITA of the phrases "might reasonably", "in normal circumstances", or "decline in value". Consequently hesubmitted that the meaning of those terms must be approached on the basis of their ordinary meaning in light of their context and purpose. He drew attention to the observation in Accent Management Ltd v Commissioner of Inland Revenue:81As the definition of depreciable intangible property notes, such property has a finite useful life. The corollary of that is that its value is likely to decline over time.80 At [34] above.81 Accent Management Ltd v Commissioner of Inland Revenue (2005) 22 NZTC 19,027 at [124].[155] Mr Lennard submitted that although, unlike the depreciable intangible property rules, the ITA does not state expressly that Schedule 13 assets have a finite useful life, the principle remains the same. Hence QAC argued that, if it can be established that an asset has a finite useful life, then its value is likely to decline over time as required by s EE6.[156] Addressing individually the several words and phrases in s EE6(2)(a) QAC submitted:(a) "in normal circumstances" requires consideration of the entiresituation in which the asset actually is or may be expected to be, together with all the normal positive and negative contingencies which attach to that situation. So, if an asset is in a particular location, the normal circumstances would include the climate and geological attributes of that location;(b) "might" imports a relatively low level of possibility;(c) "reasonably" makes it clear that the test is objective rather than subjective and excludes fanciful possibilities and vague doubts concerning a decline in value;(d) "be expected" adds little to the remainder of the test, save to make it clear that the test does not have to be repeated year after year. If an asset might (reasonably, in normal circumstances) be expected at one point in time to decline in value at some stage in the future, then it will be depreciable property at and from the moment that such expectation arises;(e) if an asset has a finite life it will necessarily "decline in value".However, regardless of an asset's anticipated physical, useful or legallife, it may also decline in value because it becomes less useful, less profitable or harder to maintain.[157] It was QAC's submission that, in order to depreciate the East RESA, QAC did not need to show that the East RESA does or should decline in value. It was sufficient to demonstrate a justifiable possibility that it will decline in value in normal circumstances.[158] The contention that the East RESA will decline in value was based on the following contentions:(a) It is an engineered structure; it is not just land like a natural hill.(b) The East RESA has a limited design life of 100 years. Dr Ian Brown, a geotechnical engineer, gave evidence that the term "design life"means the period of time during which a structure is expected to work within its specified parameters. The design life of an asset is usually reached in consultation with the project owners, who must plan for the refurbishment or replacement of the structure as it nears the end of its design life.(c) The geogrid layer of the East RESA which reinforces the fill will deteriorate over time: this layer itself has a design life of 120 years.(d) The drainage of the East RESA, which permeates the entire structure through its depth and breadth, will deteriorate over time due to the clogging of particles. This will have the effect that the East RESA becomes more vulnerable to water-logging and, in particular, will become less resistant to seismic shocks over time.(e) A sufficiently large earthquake in the region poses a risk to the stability of the structure of the East RESA due to liquefaction and seismic compression. Two categories of earthquake – 100 year and 500 year – were taken into account in its design.(f) Each of these factors, or a combination of any or all of them, means that the East RESA will become less valuable over time. As time goesby, it becomes a structure which grows weaker and will be more vulnerable to an earthquake (the chances of which increase each year without one).(g) Mr Read82 gave evidence that the East RESA incurred damage from a burst irrigation pipe in June 2012 and over the Christmas period in 2012 to 2013. This caused the erosion noted in the maintenance reports for January and February 2013.[159] The Commissioner placed significance on the point that QAC did not lead expert valuation evidence and noted that none of the valuation reports in the common bundle suggested that the embankment would decline in value. However I consider that there is validity in QAC's response that a valuer will usually provide apresent or occasionally a past value and that the question, whether an asset "in normal circumstances might be expected to decline in value", is a question which concerns the future aspects of that asset and one outside the likely expertise of avaluer. I also accept QAC's submission that the insurance documents as to thevaluation of the East RESA do not assist on the present issue.[160] However I accept the distinction which the Commissioner draws between a long-life asset, that is expected to be infrequently used and is designed to have a useful life of at least 100 years, and an asset (such as the pavement of a runway or a road) that, because of wear and tear from intensive use, will typically require replacing in five to 15 years.[161] As the Commissioner's closing submission stated:66. The evidence is that the embankment will not deteriorate through wear and tear as it is infrequently used. The useful life of the embankment is affected by its components. It is made up of compacted subgrade, which is not expected to deteriorate over time. It is notable that Mr Read in cross-examination said that he would hope that subgrade (and sub-base) would not require replacing. The Seagar valuation report dated 30 June 2014 identifies both sub-grade and indeed sub-base (although that is not contained in the embankment) as non-depreciable (indicating that they are not expected to deteriorate over a long period). And while the Geogrids82 Footnote 10 above.have a certified useful life of at least 120 years, they are only installed in small parts of the outer surface of the embankment. It isthus only small parts of the slope face that may "eventually requiremajor work around the middle of the 22th Century (timing depending on maintenance)". That amounts to replacing a component, not the whole asset.67. The significance of the evidence referred to in [66] is that [it is] inconsistent with any systematic deterioration/devaluation occurringas the policy principles underlying "depreciable property" require.The evidence is clear that the embankment will perform as designed over a 100-year period with infrequent use (except for any incidents), only minor maintenance will be required, but by the end of that time major work on the slope face will be needed as the Geogrids reach the end of their useful life. That is different from thepattern of activity with an asset that is clearly "depreciable property", eg, a truck or the runway pavement. Within a shorttimeframe those assets need replacing and so it is possible to identify the proportionate cost of their devaluation each year.[162] The Commissioner made the further point that QAC has not established why the possibility of the embankment being damaged by a 500-year earthquake would cause it to decline in value over time. The submission was advanced that depreciating assets on the basis that they might be damaged by an earthquake (or a fire or a flood) makes little sense and that undesirably it results in owners obtaining de facto insurance from the tax base on the basis of events which may never occur. In my view the possibility of such an earthquake is not comprehended by the phrase"in normal circumstances".[163] The attempt by the parties to attribute a practicable meaning to the composite expression in s EE6(1) is understandable. However I doubt the utility of endeavouring to express statutory meaning by resort to synonyms.83 In particular Iconsider that QAC's proposed threshold of a "justifiable possibility"84 falls somewhat below the standard imported by the phrase "might reasonably be expected to" decline in value.83 Telecom Corporation of New Zealand v Commerce Commission [1992] 3 NZLR 429 (CA) at 434 where Cooke P observed that it is a dangerous method of statutory interpretation to substitute words which the legislature has not in fact chosen.84 At [157] above.[164] I agree with the Commissioner's submission that any damage to the EastRESA is most likely to occur only in the rare event of an aircraft undershooting or overrunning the runway. Even then it is to be expected that only a small portion of the top layer of the embankment would be damaged, for example in the form of theruts caused by an aircraft's wheels. The evidence was that such damage could berepaired by grading and resowing grass which is minor work similar to regular maintenance.[165] Consequently I conclude that QAC has not established that the East RESA and the embankment are property that, in normal circumstances, might reasonably be expected to decline in value while they are used or are available for use.Disposition[166] QAC has been unsuccessful in its challenge which is dismissed. I hold that the Commissioner was correct to decline the depreciation deductions claimed in the 2012 and 2013 income years.[167] The Commissioner is entitled to costs and I certify for two counsel. There is no need for costs memoranda to be filed unless the Commissioner seeks costs higher than on a Schedule 2B basis.[168] I record my appreciation to all counsel for the assistance provided by their careful and illuminating submissions._____________________________Brown J