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Can you claim depreciation on insulation costs?

Photo: Insulation Material by Chris RubberDragon

The new law requires all rental properties to be insulated from the 1 July 2019. But is the cost of insulating a tenanted home tax deductible?

From 2016 landlords are required to complete an insulation statement as part of all tenancy agreements to disclose the level of underfloor, ceiling and in walls insulation. From 1 July 2019 if a property doesn’t meet the required standard, landlords may face fines of up to $4,000 for not complying with the Act.

If you found you need to upgrade or install new insulation, you may be wondering if the associated cost can be claimed at tax return time. Unfortunately, the answer is not that simple and is often considered on a case-by-case basis.

Consider the follow the scenarios:

1. Has the property ever been insulated before?

If a new insulation is being installed to make sure the property meets the minimum standards, then the costs associated with this install are likely be considered as an improvement to the building and of capital nature. There would be no deduction allowed for the cost of installing the new insulation.

2. Has the existing building insulation needed to be replaced or “topped-up”?

If the existing insulation deteriorated. was no longer effective and was replaced with same type but new material, then the expenditure on replacing insulation would likely to be seen as tax deductible.

3. What if the existing insulation was not just replaced but improved?

If the existing insulation deteriorated and was replaced with a more modern material, but the one reasonably similar to the old material, and was still only used to restore the property to its former condition, then the expenditure is still likely to be regarded as repair and maintenance and be tax deductible.

4. What if part of the building needed to be “topped-up” and part installed with new insulation?

If this is the case, then you need to treat seperate areas of the works differently. Some works will be tax deductible and some will not. Apportion your expenditure accordingly.

5. What if an insulation project was part of a larger project to renovate the whole building?

The bigger the overall project, the more likely that IRD would argue that the entire project was capital in nature and therefore not tax deductable.

It makes no difference how many properties landlords have. The treatment of the expenditure is still analysed on a case-by-case basis and largely depend on whether the project improves or restores a particular property.

If you ever in doubt whether you can claim the cost of insulation, please contact your local accountant for advice.

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. does not accept any liability that may arise from the use of this information.

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