“Repairs and Maintenance” to the tax depreciation rules

Recently the Government have released an official issues paper entitled “Repairs and Maintenance” to the tax depreciation rules.”

This issues paper contains proposed changes to the depreciation rules as they relate to chattels fitout and buildings owned by residential property investors. Clarity on this issue is long overdue and the issues paper sets out the likely changes to the introduced by the Government later this year.

Many of you will be aware that Withers Tsang & Co have taken a conservative approach on the depreciation of fitout items over the last few years since the IRD signalled that the depreciation of fitout items in certain circumstances would not be acceptable at anything other than the building rate.

A summary of the proposal put forward by the Government is as follows:

The Government suggests allowing owners of residential rental property two options.

The first, which would have higher compliance costs would allow splitting out for a certain group of separately identifiable assets but would require structural components such as wiring, plumbing and internal walls to be depreciated as part of the building.

The second would be to depreciate all building assets as part of the building but allow greater scope to deduct replacements as repairs and maintenance.

Anybody wishing to read the full chapter of the issues paper is welcome to access it from our website, www.wt.co.nz were there is a link to the IRD website www.ird.govt.nz

The proposed changes effectively mean that the opportunity to separate true chattel items from a building acquisition will remain but any items that will be considered integral to or attached to the building will need to be depreciated at the building rate.

We consider that the Government could have extended its review of the depreciation rules to a far greater extent than they have indicated in this paper and as such we are supportive of the changes to the extent that they offer clarity to taxpayers with respect to the depreciation issue.

We will keep you informed of further changes that may arise from this submission process.

You can read the full report at http://www.ird.govt.nz/

Kind regards

Mark Withers

Withers Tsang & Co Limited

Withers Tsang & Co Limited

Chartered Accountants

T: 64-9-3768860

F: 64-9-3768861

P: P O Box 47-145 Ponsonby, Auckland, N.Z.

A: 24-26 Pollen Street, Ponsonby, Auckland, N.Z.

or visit www.wt.co.nz