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Is the cost of insulating a rental property tax deductible?

AUTHOR: Anthony Strevens
Partner

POSTED: 06 December 2016

As you may be aware, there is a new law that requires all tenanted homes to be insulated by 1 July 2019. Anyone who owns rental property must ensure their properties are insulated to the required standard by this date.

At GRA we’ve been getting a lot of questions about whether the cost of insulating a rental property is tax deductible or whether it is non-deductible capital expenditure, so we thought it would be helpful to clarify.

Frist, let’s define capital versus non-capital (revenue) expenditure. Capital expenditure refers to expenses over $500 that result in improvements to a property. On the other hand, revenue expenditure is the type of work that restores a property to its original condition.

Bearing this in mind, how the cost of insulating a rental property is treated will depend on whether it is considered to be a repair or an improvement. The Commissioner of Inland Revenue discusses the treatment of expenditure on insulating residential rental properties in Interpretation Statement 12/03*. In the statement, the Commissioner concludes that:

Expenditure on installing insulation in a property that has never been insulated is non-deductible capital expenditure, as the expenditure results in an improvement to the property and can’t be considered a repair.
However, expenditure on replacing insulation that has deteriorated and is no longer effective is a deductible expense because the expenditure simply restores the property to its former condition.

The fact that the individual owns numerous properties does not alter the treatment of the expenditure. Whether the expenditure on insulation is deductible or not is determined by whether it restores or improves a particular property.

If you are not sure about whether or not to claim the cost of insulation as an expense, please contact your GRA Client Services Manager. Otherwise, if you are not already a GRA client we invite you to fill out our online form to request a meeting or phone us on (09) 522 7955 to see how we can help you.

* Reference:
Income Tax Act 2007, ss DA 1, DA 2(1).
Inland Revenue Interpretation Statement IS 12/03 Income Tax - Deductibility of Repairs and Maintenance Expenditure - General Principles, 29 June 2012.

Request a Meeting

Anthony Strevens
Partner

09 522-7955

anthonys@gra.co.nz

© Gilligan Rowe & Associates LP

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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.

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This letter is to express my appreciation for the assistance and encouragement of both Anthony Lipscombe and particularly John Heaslip over the last financial year. The period since activating my trading trust has been one of considerable stress, as well as personal development, as I embarked on this as a relative business neophyte with virtually no awareness of the contemporary requirements of running a business, particularly the financial records aspect. During much of this period I have therefore felt considerable out of my depth. However I have been lucky enough to have had the benefit of the advice and support of John Heaslip in rationalizing what was a fairly chaotic set of records of the first year property trading. I am able to say that John in particular, has been unstinting in his attention to my needs and has done so in a manner which has never alluded to my extremely rudimentary grasp of managing a business, or even of being unable to set out a spread sheet properly. The result of the above guidance is that now, although my trading trust would still not be able to operate without the advice of GRA, I do least feel a sense of satisfaction that I have got to my present point without major disaster and that my property trust does now have some kind of firmer basis for any future activities - Name withheld by request

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