Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Deductions - Specific rules for expenditure types

DB 21: Amounts paid for non-compliance with covenant for repair

You could also call this:

“Tax deductions for repair payments due to broken lease agreements”

When you rent land to make money, your lease might say you have to look after the land or fix things on it. If you don’t do this, you might have to pay money to the person you’re renting from. This can happen while you’re renting or even after you’ve stopped.

If you pay this money, you can get some of it back on your taxes. But you can only get back the part that’s for fixing things or looking after the land. It’s like if you had spent the money on repairs while you were renting - you’d be able to get some of that back on your taxes too.

You can claim this money back on your taxes in the same year that you pay it, or when the person you’re renting from gets it from you.

There’s another rule called section EJ 11 that might change how this works, so you need to check that too.

This rule adds to the general permission for tax deductions and overrides the capital limitation. But the other general limitations still apply.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513620.

Topics:
Money and consumer rights > Taxes
Housing and property > Renting
Previous

DB 20C: Consideration for agreement to surrender leasehold estate or terminate licence, or

“Tax deduction for paying to end a lease or land use licence early”

Next

DB 22: Amounts paid for non-compliance and change in use, or

“Money back for landlords who repair property after receiving income for non-compliance”

Part D Deductions
Specific rules for expenditure types

DB 21Amounts paid for non-compliance with covenant for repair

  1. This section applies when—

  2. a person who is a lessee of land uses it to derive income; and
    1. the lease contains a covenant requiring the lessee to maintain the land or to make repairs to improvements on the land; and
      1. the lessee does not comply with the covenant; and
        1. the lessee is, consequently, liable to pay an amount to the lessor; and
          1. either—
            1. the lessee, during the term of the lease or after it ends, pays the amount to the lessor; or
              1. the lessor recovers the amount from the lessee during the term of the lease or after it ends.

              2. The lessee is allowed a deduction for the amount paid to the extent to which it relates to maintenance or repairs and to the extent to which the lessee would have been allowed a deduction for the expenditure had the lessee incurred it during the term of the lease.

              3. The deduction is allocated to the income year in which the lessee pays the amount or the lessor recovers the amount.

              4. This section is overridden by section EJ 11 (Amount paid by lessee for non-compliance with covenant for repair).

              5. This section supplements the general permission and overrides the capital limitation. The other general limitations still apply.

              Compare