This week IRD proposed a refresh of its guidance on the deductibility of repair and maintenance expenditure (PUB00505). IRD’s core approach to distinguishing capital from revenue remains consistent with earlier guidance in Interpretation Statement 12/03.
The proposed guidance clarifies that the capital asset identified can differ from the item of depreciable property, especially if the taxpayer does not own the whole asset. Example 5 shows that depending on the scope and independence of the work, the relevant asset for repairs and maintenance can be either the whole building block or an individual unit of the building.
Recent case law provides more detailed guidance on when repairs form part of a single capital project versus when apportionment is appropriate. It clarifies that if work is part of an overall capital project all expense are capital. Whereas an apportionment is only possible if work is truly separate from the capital project.
A new section on addressing inherent defects has been included with a focus on leaky buildings. This includes commentary on Lawrence v CIR [2024] NZHC 905.
IRD states that work addressing inherent defects often extend beyond simple repairs to the building. While the underlying cause of work is relevant, it is not the sole determining factor. What matters most is whether removing the defect requires “significant or integral parts of the building to undergo substantial work”. Work of this nature likely goes beyond a repair and changes the character of the asset.
IRD’s interpretation of Lawrence, suggests addressing inherent defects such as leaky buildings will by default require capital work. This appears to be the starting point from which taxpayers must convince IRD to depart from.
Submissions on this draft interpretation statement are open until 28 November 2025.