Updated Inland Revenue Guidance on Repair and Maintenance Expenditure

Inland revenue has recently issued the Income tax - deductibility, repairs and maintenance expenditure, general principles. This issue provides updated guidance on how taxpayers should treat costs incurred when conducting work on tangible property used in businesses.

The recent statement replaces and updates the commissioner’s earlier guidance. Although the Commissioner’s interpretation of the law has not changed, the updated statement reflects recent legal developments, improved clarity, and a modern format.

Why this update matters

This is a crucial update as it expresses the importance of correctly identifying whether an expense qualifies as repairs and maintenance or capital expenditure of the business or organisation.

This is particularly relevant since depreciation deductions are no longer allowed for buildings. As a result, businesses must ensure that work undertaken on property is properly characterized, as the tax treatment can differ significantly depending on whether the expenditure is considered deductible repairs or non-deductible capital improvements.

What this guidance covers

This interpretation statement focuses on the general principles that determine whether an expenditure on tangible property is deductible for income tax purposes. This guidance applies when taxpayers carry out work on assets used in the business operations or income earning activities.

The updated interpretation statement aims to make the guidance easier to understand by these four main steps:

1.     Improving the structure and layout of the statement

2.     Updating diagrams and wording to enhance readability

3.     Refreshing existing examples

4.     Adding four new examples to illustrate how the principles apply in practice.

Although the underlying interpretation of the law remains unchanged, these updates help taxpayers and advisers apply the rules more clearly to real-world situations.

Supporting fact sheets:

Two accompanying fact sheets have also been released to help taxpayers quickly understand the key points from the interpretation statement.

The first fact sheet was released on 2nd March 2026, providing a summary of the main principles contained in the interpretation statement.

Following the release of the first, the second fact sheet in the same series, highlights key points from the statement that are specifically relevant to leaky buildings - an area of ongoing practical importance given the volume of remediation work still being undertaken across New Zealand.

The dedicated fact sheet on leaky buildings is a welcome addition. Remediation work on leaky buildings has generated considerable uncertainty over the years, given that the work involved can be extensive, may be required under legal obligations, and often involves replacing components that have failed structurally rather than simply deteriorating through use.

The fact sheet provides a targeted guidance on how the general principles apply in this specific context, which should assist practitioners and building owners in approaching the characterization of remediation expenditure with greater confidence.

These fact sheets are designed as quick reference guides for taxpayers seeking a high-level overview of the updated guidance.

To conclude, the release of the first fact sheet does not change the Commissioner's interpretation of the law but modernizes the presentation of the guidelines and incorporates recent legal developments. For businesses that spend money fixing or maintaining property, it’s important to know the difference between repairs and improvements so they apply the correct tax treatment.

If you are unsure how these rules apply to your situation, feel free to reach out to us. We can assist you in reviewing your expenditure and ensuring it is treated appropriately.