Case-by-case depreciation

Our Experts Answer:

It's not that the costs can't be capitalised, its the fact that capital expenditure is now "black hole" expenditure from a tax perspective given that it can be neither deducted nor depreciated. The question of whether it can be deducted as a repair or must be capitalised though is a case by case exercise. The IRD expect you to firstly identify the asset in question, if the expenditure is on a seperate asset it must be capitalised as such, if it simply maintains an existing asset it may be deductible. Next, you are expected to consider whether the work goes beyond what could be considered maintenance, this would be the case if the expenditure is significant and essentially replaces the asset. You must also consider the dilapidation issue that you have mentioned. If the fault existed when you purchased the property the IRD would generally consider it to have been factored into the price paid and as such the subsequent work would be capital. It is all a question of extent and degree and is inevitably subjective.