Repairs refers to restoring an asset by renewal or replacing the parts of the whole. Expense from repairs are deductible.
Renewal refers to reconstructing an asset to a substantial amount.
Inland Revenue’s policy on repairs and maintenance include:
- Expenses occurred due to repairs, maintenance, and alterations must be on revenue account, not capital.
- Expenses occurred due to maintaining an asset in the same condition is deductible.
- Expenses occurred due to making an asset over and above good wear and tear is not deductible.
- Replacement of an asset is capital expenditure.
Notional repairs are not deductible. Notional repairs refer to the cost of repair that would have costed the taxpayer if they have decided to repair not just replace the asset.
If the asset is a substantial unit that can function on its own, it is considered individual and expenditure on that particular unit will be measured. Common examples of asset that is considered individual are buildings that are attached to larger complex, motor vehicles, and boat builder’s slipway.