Owning a rental property in New Zealand is a smart way to build your wealth, but keeping on top of the tax rules can feel a bit overwhelming. One area that often trips up landlords is the difference between maintenance and renovation. Knowing the distinction can help you claim the right deductions and make the most of your investment. Let’s break it down in simple terms.

What’s Maintenance?

Think of maintenance as the work needed to keep your property ticking along in its current state. These are the everyday fixes and repairs that ensure your place stays in good nick and comfortable for tenants.

Here are some common examples:

• Fixing a dripping tap or a leaky roof.
• Replacing broken windows.
• Repairing the heat pump or heater.
• Touching up paint to cover wear and tear.
• Servicing tenant-use appliances like the washing machine.

Tax Tip: Maintenance costs are operating expenses, which means you can claim them as immediate tax deductions. That’s extra money in your pocket at tax time!

What’s Renovation?

Renovation, on the other hand, is all about upgrades or big changes that add value or extend your property’s life. This could mean anything from modernising the kitchen to building a new deck.

Examples of renovations include:

• Adding a new bedroom or bathroom.
• Swapping out an old kitchen for something sleek and modern.
• Upgrading carpet to high-end flooring.
• Installing double glazing.
• Building a garage or outdoor entertainment area.

Tax Tip: Renovation costs are considered capital expenses, so you can’t claim them straight away. Instead, they’re added to your property’s value and may qualify for depreciation over time.

3. Maintenance Vs Renovation: How to Tell the Difference

Sometimes it’s a bit tricky to know where the line is. Here’s how you can figure it out:

1. What’s the Goal? Are you simply fixing something to get it back to its original state (maintenance) or upgrading it to something better (renovation)?
2. How Big Is the Job? Small repairs are typically maintenance, while major upgrades lean towards renovation.
3. When’s It Happening? If you’re fixing issues soon after buying the property, the IRD might view it as part of the purchase cost, not maintenance.
4. Keep Records: Always hold onto receipts and contractor invoices to back up your claims.

Other Things to Keep in Mind

• Splitting Costs: If a job includes both maintenance and renovation, you may need
  to split the costs. For example, fixing part of a roof might be
  maintenance, but upgrading the whole roof to premium materials is
  renovation.
• Tenant Damage: Repairs caused by tenant damage are usually considered
  maintenance, so you can claim those.
• Ask the Experts: Tax laws can get complicated, so it’s always worth
  chatting with your local SBA if you need help.

Why This Matters

Getting your deductions right doesn’t just keep the IRD happy – it helps your cash flow too. Claiming maintenance costs can give you some quick financial relief, while properly accounting for renovation expenses sets you up for long-term success.

Being a landlord means balancing upkeep and improvements and knowing where your expenses fit can make a big difference. Stay organised, work with SBA when you need to and stay on top of New Zealand’s tax rules to get the most out of your investment.