GRA Blogs

Articles by Anthony Strevens

Is the cost of insulating a rental property tax deductible?

AUTHOR: Anthony Strevens

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
Business Advisory Director

09 522-7955

anthonys@gra.co.nz

© Gilligan Rowe & Associates LP

Did you like this article? Subscribe to our newsletter to receive tips, updates and useful information to help you protect your assets and grow your net worth. We're expert accountants providing expert advice to clients in NZ and around the world.

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.

Comments

Testimonials

Thanks for a great night at your property information seminar last night. Both my husband and I thoroughly enjoyed what Matthew had to talk about and we learnt a great a lot. We have recently joined GRA for our accounting services and are in the process of changing structures with trusts etc. Whilst its only early days everyone so far we have dealt with has been fantastic and we feel we are in great hands with GRA to not only manage our affairs but to also help to grow our wealth moving forward. We look forward to joining you at property school next year! - Amanda C, November 2018

Seminars and workshops for property investors, business owners and anyone seeking to create and protect their wealth.

View all our upcoming events

Learn More

Investing in residential property?

Put this at the top of your reading list.

If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.

Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.