The IRD recently released an interpretation statement on the often vexed issue of what costs are deductible on repairs and maintenance (R&M). In short the statement is both a good and accurate summary of the New Zealand and international case law on the topic. It acknowledges that often two cases with almost identical facts can result in opposing answers.
Of particular benefit however is that the IRD at long last considers the significant national issue of leaky building claims. There is both relevant case law discussion, as well as three very useful examples.
In summary for a rental asset:
1 If the repairs are to make good the leaky building issues, but not to improve the building, then it will be a deductible repair.
2 If there are new or better components (eg double glazing over single, additional rooms added), there will be capital costs.
3 If the repair is so extensive that the asset is significantly replaced, even if not improved, this will be capital as it is no longer a repair but a replacement.
As always it will be a question of degree, but at least we have some points to measure it against.
Refer www.ird.govt.nz – key word IS 12/03