With effect from 1 July 2019, all tenanted homes are required to be insulated. Landlords must insulate by then. If not then tenants have grounds to take legal action against the landlords.
We have been getting lots of questions about whether the cost of insulating a rental property is tax deductible or whether it is non-deductible capital expenditure and if non-deductible whether its depreciable! So we thought it would be helpful to clarify.
Capital vs non-capital (revenue)
Generally speaking, capital expenditure refers to expenses over $500 that results in "improvements" to a property. "Improvements" generally adds "functionality" (e.g a new room added or new door installed where there was none or building a deck where there was none) On the other hand, revenue expenditure is the type of work that restores a property to its original condition like a new paint, repairing an existing deck.
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 (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). In the statement, the Commissioner concludes that:
If you are not sure about whether or not to claim the cost of insulation as an expense, please contact your Advisor at Core Business Services, Chartered Accountants at 0211 00 66 11 or firstname.lastname@example.org
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