Repairs and maintenance

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.

Revenue or Capital?

Questions to ask oneself when deciding whether the expense is capital or revenue:

  • Does the expenditure increase the useful life of the asset, or its output or efficiency?
  • Is the expenditure recurrent?
  • Does the expenditure create a new asset that did not exist before?
  • Does the expenditure confer an enduring benefit to the taxpayer?
  • Does the expenditure relate to the profit-earning process or the profit-earning structure of the business?

Consider all questions.

For capital expenditures deductions are not allowed by can be depreciated.

Repairs and maintenance to ancillary plant:

Expenditure is deductible when it is:

  1. Repairs and maintenance done on existing equipment; and
  2. Alterations not involving significant improvement or change.

Expenditure is capital and not deductible when it is:

  1. Installation of new equipment;
  2. Replacement of the entire new asset; and
  3. Alterations involving major improvements

Repairs and maintenance for rental investments

Property owners must be aware that:

  • Repairs and maintenance expenses are only claimable if the repairs were done when the tenant was still living in the property or the house was available for renting.
  • Repairs and maintenance expense for repairs carried out for damages that were realised after the tenant has left the property is not claimable.