Remediation tax issues
Question from clinton updated on 2nd October 2020:
I own a unit in a block which had some leaky home remediation done. I am in discussions with the IRD over whether this is capital or maintenance. So I’m aware this is a complex area and it’s not my question for today. My issue is that I couldn't rent out the unit for about six months while the remediation was being completed.
I am concerned that the IRD will say that the unit was not available for rent during that time and that, as a result, I should not have claimed my interest payments as a deductible expense during that time. Can I have your view on this please?
Our expert Mark Withers responded:
Sorry to hear you are dealing with this: It’s very difficult. I believe there is a subtle but important difference between the property being rendered un rent-able as opposed to it being unavailable for rent. A property that is made unavailable is one where the taxpayer has opted not to seek income from it. For example: if they have decided to let a family member live in it rent free.
In your circumstances, I am sure you would have loved to have rented it but the remediation rendered this impossible. I believe in your circumstances the property is still available for rent but simply can't be rented. I believe this should enable the revenue account holding costs to remain deductible during the remediation period where the property will be re-rented as soon as it physically can be.
Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.
Search the Ask an Expert archive
Browse all questions in the Ask An Expert Archive »