Tax Updates: 10 November 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

Removing asbestos—it’s a risky business

It’s not an uncommon question: your client has discovered asbestos in a building they own, and now knowing that it is there (and the potential risks of leaving it there), they want to initiate the removal process, but equally want to know if the costs incurred will be tax deductible or not—perhaps to lessen the pain in their pocket.

One of Inland Revenue’s (IR) latest draft QWBA’s (Questions We’ve Been Asked) endeavours to explore the question and to provide some guidance to you, suggesting three potential outcomes:

• The costs are immediately deductible (basically as repairs and maintenance expenditure);

• The costs are capital but tied to a depreciable asset, and therefore it’s a timing issue; or,

• The costs are capital but tied to a non-depreciable asset (a building from the 2025 year onwards, for example), however, the specific deduction provision of section DB 46 still provides some relief to your pocket, either immediately or via amortisation over a period of up to 35 years.

Consideration of the first two points will require your brain to revisit the age-old principles of capital versus revenue, and the Commissioner has certainly published numerous items on this topic. The latest being a draft interpretation statement (IS) issued just last month titled “Income tax—deductibility of repairs and maintenance expenditure—general principles.”

So, can you hand on heart say that the work to remove the asbestos is not of a scale or nature improving the asset the asbestos is being removed from? If so, then potentially it’s just a repair cost that is immediately deductible. Start the assessment, therefore, by asking yourself, what is the relevant asset that is being repaired or worked on? And then consider the nature and extent of the work done to that asset. Once these two questions are answered, then ask yourself if the work has led to the reconstruction, replacement or renewal of the asset, either entirely or substantially? If yes, the costs are likely capital, and you need to move to point two. However, if the answer is no, then ask if the work has gone beyond making good of what is normal wear and tear and changed the character of the asset? Once again, a yes will lead you to point two. However, no? Then, bingo! The costs are likely immediately deductible.

Moving on to point two, it is essential to identify exactly which asset the asbestos removal costs relate to, as this could be the difference between a non-depreciable asset (meaning you are left with the last resort, Section DB 46, to obtain some relief) and a depreciable one. Suppose the asset involved is a depreciable one. In that instance, it should be a case of adding the removal costs to the adjusted tax value of the asset and depreciating the asset further accordingly.

If you’ve made it as far as point three, then your next step will be to review Schedule 19 and confirm that your expenditure is listed in either Part A or Part B. If you find your expenditure listed under Part A, item 1, or anywhere within Part B, then the costs are immediately deductible. Otherwise, other Part A items require amortisation of the cost over a period of up to 35 years.

The draft QWBA is a 13-page read and contains a useful table and examples to help guide you through the analysis process.

Finally, if you wish to make a submission on the draft, referenced PUB00510, you must do so no later than 28^th November 2025.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.