Compulsory Rental Property Insulation – Deductible or Not?

13 April 2018

With the governments new legislation hitting in 2019 for landlords to insulate their rentals – questions have been asked whether this will be tax deductible or not.

Unfortunately even though the government is forcing this rule – it doesn’t automatically translate into a tax deduction with IRD.

The NZ Property Investors Federation approached Inland Revenue about this issue and this was their reply:

The tax treatment for additional insulation into a building that is already partially insulated needs to be considered on a case by case basis and made the following points:

Where a building already has insulation and, in order to meet the minimum standards, the owner is required to “top-up” the insulation provided, this “top-up” uses the same or similar standard of material as is already being used, then the “top-up” is likely to be deductible as repairs and maintenance.

If, while doing this “top-up” the owner takes the opportunity to install new insulation into another part of the building (e.g. adds insulation under the floor and the same time as topping up the insulation in the ceiling), the cost of the “top-up” would likely be deductible as repairs and maintenance.  However, the new insulation constitutes an improvement and there would be no deduction allowed for the cost of installing the new material.

If a building owner elects to use an improved standard of insulation – say to change from “Batts” to a blanket type of insulation – then it is possible the new insulation in the ceiling will not be a repair but a new asset and part of the building. However if the insulation initially used in the ceiling was no longer available, and was topped up with material that is reasonably similar (or a more modern equivalent), then perhaps the “top-up” may be likely regarded as R&M.

So at this stage this is the Inland Revenue’s stance, so it’s important that as a rental property owner you correctly determine what you are doing, replacing or adding to in your property to give us the best information to prepare your accounts and returns correctly.