Is re-roofing capital or repair?

Our Experts Answer:

Actual legislation on repairs and maintenance is quite straight forward in that there is a general deduction to the extent that it is related to deriving income. There is however an exclusion if the work is of a capital nature i.e. an improvement. The general principal is to firstly identify the asset, in your case the asset is the building, not a roof as the roof only functions as a part of the building. Secondly, assess the nature and extent of the work and its effect on the character of the property, thirdly assess whether the nature of the work has gone beyond remedying fair wear and tear. You probably need to look at this question in the context of how long you have owned it i.e. if you purchased it knowing the roof needed replacement this will have a different context than if you have owned it 20 years and it has had its life cycle. The IRD provide an example in their TIB vol 5 Feb 1994 where a rental property that was rented for five years has a tile roof replaced with steel. Because the new roof does not alter the nature of the house the cost is an allowable repair. I believe your insulation would be treated in a similar way especially if there is existing insulation that has reached the end of its life.