Leaky unit deduction

Our Experts Answer:

Losses on disposal of buildings held on capital account in New Zealand are non-deductible in the same way that capital gains are not assessable. The only real question is whether the cost of remediation is deductible R&M or non-deductible capital improvement.

Now this is a real chestnut! Despite a decade of leaky buildings we still don't have a precedent tax case on the deductibility of leaky building remediation. In fact, most of our test cases on R & M relate to railway maintenance in the 1800's (a time when buildings didn't leak). The lack of a test case is probably because individuals are so emotionally and financially spent by the toll it all takes that nobody has had the energy to take a case.

IRD simply say "we assess every case on its merits". Unfortunately, in recent times there seems to be a hardening of attitudes at IRD with many repair claims being denied. One strategy is to file a return having capitalised the remediation and then lodge a notice of proposed adjustment seeking a change to allow the remediation as R & M. This forces IRD to consider the matter without you facing the risk of penalties for taking an unacceptable tax position. If they deny the deduction you can enter the formal dispute process.