Understanding the nature of your expenses
Landlords of residential rental properties must ensure their homes meet the HHS minimum standards. To do this, you may need to renovate, replace flooring, install heat pumps, or add extractor fans. Some of these costs are non-deductible, while others may qualify as deductible repairs and maintenance.
In tax terms, expenses fall into two broad categories:
Revenue expenditure: Operating costs that are typically tax-deductible in the year they are incurred.
Capital expenditure: Long-term improvements that form part of the building or asset; usually non-deductible, though depreciation may apply.
Understanding this distinction is key to knowing whether you can claim tax concessions.
What the IRD considers non-deductible capital costs
The IRD generally classifies work required to comply with the HHS as capital in nature—especially when it involves replacing or significantly improving part of the property. This includes work that renews or upgrades an asset rather than simply repairing it.
The following are considered capital improvements and therefore non-deductible as immediate expenses:
- Smoke alarms
- Ceiling and underfloor insulation
- Ducted or multi-unit heat pumps
- Flued gas or wood burners
- New or replacement openable windows
- New exterior doors
- Most extractor fans or range hoods
- Ground moisture barriers
- Drainage systems for storm, surface, and groundwater and drainage of water from roofs.
These items are deemed integral to the structure of the property or are substantial in nature, meaning the upfront costs cannot be claimed in full as a deduction.
What can be deducted immediately?
If you're undertaking minor work to restore something to its original condition—such as patch repairs to insulation, servicing a heat pump, or re-fixing an existing extractor fan—these may qualify as revenue costs and be fully deductible in the year incurred.
The key factor is whether the work restores or maintains the asset (deductible) versus replacing or substantially improving it (capital).
What about depreciable assets?
Some items—although capital in nature—can be treated as separate chattels rather than part of the building structure. These include:
- Heat pumps (non-ducted)
- Curtains and blinds
- Carpets
- Freestanding extractor fans or range hoods
- Portable dehumidifiers
- Appliances
If these items are under $1,000, you may be able to claim the full cost in the year of purchase using the low-value asset threshold. If over $1,000, they can still be depreciated over time using rates set by IRD.
Refer to the IRD's guide below for more information.
The IRD's Residential Rental Property Chattels - Depreciation rates
Tip: Get professional advice
Healthy Homes compliance can blur the line between capital upgrades and deductible repairs. If you're unsure how to categorise a cost or claim, it’s wise to seek advice from a tax professional before finalising your return. Book your healthy homes assessment today
If you are ever in doubt about whether you can claim the costs incurred to meet the HHS, seek advice before taking a final tax position.
For more information:
Can you claim depreciation on insulation costs?
The information contained in this article is exclusively for promotional purposes. It does not in any way constitute legal advice and should not be relied upon as the basis for any legal action or contractual dealings. The information is not and does not attempt to be, a comprehensive account of the relevant law in New Zealand. If you require legal advice, you should seek independent legal counsel. myRent.co.nz does not accept any liability that may arise from the use of this information.
