Capital vs maintenance?

Our Experts Answer:

There are three steps required to determine whether the expenditure is deductible as repairs and maintenance. Firstly, identify the asset. If you have created a distinct asset it is likely to be capital. In this case the asset is the building and your works do not appear to have created a new building distinct from the original. Secondly, assess the nature and extent of the work and the effect this work has on the character of the asset. Thirdly, assess whether the work has gone beyond remedying fair wear and tear and has improved the asset beyond what could be considered simple maintenance. In practice you need to consider how long you have owned the asset and whether some of the issues existed at the point of purchase. Did you increase the insured value of the building having done the work? Were you able to increase the rental having done the work? If so these can be indicators of capital works rather than repairs and maintenance. Before and after photos giving some context to the damage are also useful if the matter leads to dispute. Without having seen the work or the nature of the issues fixed it is difficult to be categorical with you but these are the principals IRD would use to form their view.