Trust deductions

Question from Maria updated on 12th June 2019:

I live in a house which is in a family trust. The house needs to have some maintenance work - mainly the replacement of some old windows and the resanding/polishing of the floors. It could also do with a major kitchen upgrade. What's the story with this sort of maintenance/repair work when it comes to depreciation?

Our expert Mark Withers responded:

The most fundamental cornerstone to deductibility is a nexus with income, so there are no deductions available with your own home in the trust because it won't be producing taxable rental income. If the property were rented, there is the prospect of depreciating chattel items that are not attached to or part of the fabric of the building.

In NZ now buildings are no longer depreciable but the chattels still are. Carpets and curtains for example, are depreciable items that are distinct from the building. If the asset being worked on is the building itself, the cost of maintaining it whilst tenanted is generally deductible as repairs.

But there are extent and degree issues and timing issues to consider. For example, if a house is purchased for rental in a dilapidated state the cost of making it fit for rental is a capital cost, not deductible but if the property had been owned and rented for some years, the same work to keep it in a rentable state would generally be deductible as repair costs.

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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