CHB Mail - - Tuki Talk -

Mary owns a res­i­den­tial rental prop­erty. Dur­ing an in­spec­tion, she no­tices that ex­te­rior boards at the rear of the prop­erty have de­vel­oped moss and lichen due to the win­ter damp­ness. Mary en­gages a handy­man to wa­terblast the area. She notes that this is a task will need to be per­formed every year. In this case the work done does not im­prove the value of the prop­erty but re­stores the ex­te­rior to its orig­i­nal con­di­tion. The ex­pen­di­ture will be re­cur­rent but with min­i­mal cost. This is a de­ductible ex­pense.

Mary’s handy­man has dis­cov­ered that some tim­ber fram­ing around a win­dow is rot­ten and needs re­plac­ing.

To make the re­pairs the cladding and win­dow needs to be re­moved and re­fit­ted.

Although this is a rea­son­able amount of work and ex­pense to Mary these re­pairs are de­ductible as the work does not amount to re­con­struc­tion, re­place­ment or re­newal of sub­stan­tially the whole of the house.

Nor do the re­pairs change the char­ac­ter of the house.

Mary has de­cided that the heat­ing is inad­e­quate for her ten­ants. She opts to in­stall two heat pumps, one in the cen­tral liv­ing area and the other in the hall­way close to the bed­rooms.

Mary doesn’t have the funds read­ily avail­able so fi­nances the pur­chase via bank debt. The heat pumps are sep­a­rate iden­ti­fi­able as­sets and there­fore can­not be ex­pensed.

How­ever, Mary is en­ti­tled to make a de­pre­ci­a­tion claim for the use­ful life of the as­sets.

Mary’s ten­ants have trans­ferred to Auck­land. Mary has been con­sid­er­ing the ad­di­tion of a bed­room to the house and takes this op­por­tu­nity to start ren­o­va­tion work.

This is a ma­jor con­struc­tion project which sub­stan­tially im­proves the prop­erty’s value. This ex­pen­di­ture is cap­i­tal in na­ture.

As it is part of the build­ing there is no de­duc­tion avail­able.

This is a grey area of tax leg­is­la­tion with no ‘one size fits all’.

If you own a rental prop­erty and are con­tem­plat­ing im­prove­ments, please con­tact your Crowe Hor­wath ad­vi­sor to find out how we can as­sist you.

■ This in­for­ma­tion is gen­eral in na­ture and read­ers should seek spe­cial­ist ad­vice be­fore mak­ing fi­nan­cial de­ci­sions.

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