Is re-roofing capital or repair?

Question from Rose updated on 2nd November 2012:

I am looking to reroof a block of three flats (or at least the two flats that have an adjoining roof), replacing the original textured decramastic tiling that is over 40 years old but has been retextured since. One flat has some dented tiles and has developed a couple of roof leaks and we have not been able to locate and fix the most recent leak. I have been advised to reroof because of the general condition of the roof. If I reroof the flats in decramastic tiling can this be claimed as a tax deductible expense? What about if I reroofed in a different material such as long run? Also if I put in ceiling insulation at the same time can this also be claimed? The current insulation has settled and is no longer robust enough.

Our expert Mark Withers responded:

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.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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