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  • Taxation Definitions

    My wife and I are renting out our property while we live in the UK for a few years.

    In relation to 'repairs and maintenance' is there a definition in legislation as to what qualifies as 'repairs and maintenance'?

    I want to do a few things under this heading but would hate to do it and find out that it doesn't qualify.

    If there is no legislative definition, how do IRD define what does/doesn't qualify?

  • #2
    This is as often as not, a judgement call. There is no strict definition. This is where you need a good Chartered Accountant - preferably a property specialist.

    Whether money spent to fix something is considered Repairs (and therefore deductible) or Improvements (and therefore capitalised and non deductible or sometimes deductible spread over a long period) is a result of the Capital Tests set out by various court cases throughout the old world:

    • The need that called for the expenditure: Consider surrounding circumstances.
    • Is the expenditure recurrent?
    • Have you created an identifiable asset?
    • Does the expenditure create enduring benefit to the business? This is often referred to as the 'substantial improvement' test
    • Is it related to the business structure, or income-earning process?


    This is not a conclusive list, the others are difficult to word this early in the morning, and require a more specialist understanding to grasp.

    In some cases, there are specific laws that override what we call the Capital Limitation. For example, expenses under $500 are almost always repairs - but not if they've been done at the same time as others, making the total over $500.
    AAT Accounting Services - Property Specialist - [email protected]
    Fixed price fees and quick knowledgeable service for property investors & traders!

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    • #3
      Also is it private, or repairs relating to the rental?

      If you buy a rental, then paint it the next day, this isn't a repair. It is a cost of buying.

      So similarly if you changed from private to rental, then did major repairs within a short period, these wouldn't be deductible.

      Ross
      Book a free chat here
      Ross Barnett - Property Accountant

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      • #4
        Thanks for that Rosco, I was hoping there would be some black and white definition but sadly that isn't the case.

        We have owned the house and lived in it for two years before moving to the UK and now there are things that need doing to the property e.g:

        There is a 50cm boundary fence that goes around the front of the property which is rotting, I want to remove it and put up a 5ft fence as the boundary fence but was hoping to claim it as repairs and maintenance.

        The dishwasher is dated and I want to put a new one in but am hoping to write it off as maintenance.

        There are other things that need doing as well but would like to know if I can claim them back before I spend the money to do them.

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        • #5
          These are sounding like assets anyway! So means you can depreciate but not claim as maintenance.

          Ross
          Book a free chat here
          Ross Barnett - Property Accountant

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          • #6
            Hi Ross

            All very helpful. Can repainting a place after the tenants moved out be considered as maintenance? Cheers.

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            • #7
              as with all questions it depends. Normally yes. But could be no if just purchased, or doing up for sale, or similar with private.

              Ross
              Book a free chat here
              Ross Barnett - Property Accountant

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              • #8
                Originally posted by Rosco View Post
                These are sounding like assets anyway! So means you can depreciate but not claim as maintenance.

                Ross
                Yea but I figure as they are existing, aging and damaged assets that updating them could be deemed as maintenance?

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                • #9
                  Originally posted by BradFromNZ View Post
                  Yea but I figure as they are existing, aging and damaged assets that updating them could be deemed as maintenance?
                  So I've got a rental, had it for years.
                  Dishwasher fails and needs replacing, currently in the depreciation schedule.
                  I buy a new one for <=$500 and expense it (an asset under $500).
                  I write off the residual book value of the old one.
                  Simple.

                  I buy a house to rent and the dishwasher is stuffed.
                  I buy a new one but, as the house is new to me, I depreciate the new asset.
                  It isn't R&M as the house is too new.

                  The same applies for moving your house from owner to rental.
                  It all DEPENDS.

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                  • #10
                    Originally posted by BradFromNZ View Post
                    Yea but I figure as they are existing, aging and damaged assets that updating them could be deemed as maintenance?
                    Existing and damaged = R & M if replacing with essentially the same
                    Existing and aged = if still in working order, this is most likely an improvement and depreciable

                    Rough and ready rule:
                    Damaged like for like - R & M
                    Bigger/better - improvement so depreciate the asset
                    My blog. From personal experience.
                    http://statehousinginnz.wordpress.com/

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                    • #11
                      If tax an accounting rules were black and white, it wouldn't take a minimum of seven years to qualify as a Chartered Accountant, and there wouldn't be much need for them anyway - we would just be bookkeepers for those too lazy to read the rules.

                      You'll rarely get any conclusive answers from the grey areas.
                      AAT Accounting Services - Property Specialist - [email protected]
                      Fixed price fees and quick knowledgeable service for property investors & traders!

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                      • #12
                        Cheers guys.

                        Looks like it might be a matter of 'claim it and see if IRD have an issue with it' haha

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                        • #13
                          Originally posted by BradFromNZ View Post
                          Cheers guys.

                          Looks like it might be a matter of 'claim it and see if IRD have an issue with it' haha
                          They won't know until you get audited!
                          Bit late then.
                          I have seen people do many dodgy and illegal things and say that the IRD are OK with it as they haven't complained.
                          In reality they just haven't noticed yet!

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                          • #14
                            Yes it's a most convoluted process trying to figure out what is and isn't legit once you stray from the basics. We find the USA even worse. Some of their actual legislation is so badly written accountants send it to you and tell you to decide what you think it means. They can't even define what "doing business" in a state is :-).

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