Repairs and maintenance

What it means

A repair removes partial physical wear or damage to an asset in order to restore it to its original or working condition. Maintenance is ongoing work that slows wear and prevents breakdowns, such as regular servicing, oil changes or painting.

Repair and maintenance costs are an expense of the period in which they arise and are tax-deductible at once. This distinguishes them from a technical improvement, meaning an extension, addition, reconstruction or modernisation that increases the asset’s value and is claimed gradually through depreciation.

The line between repair and improvement is not always obvious. What matters is whether the original function is being restored or the purpose, equipment or technical parameters are changing. Replacing old windows with the same kind is a repair; replacing them with markedly better ones with a different function may already be modernisation.

How it works in practice

For every larger invoice for work on fixed assets we assess the content, not the title. An invoice headed roof repair may include insulation, which is a technical improvement. Where work is mixed, we ask the contractor for a breakdown.

The Income Tax Act sets a threshold below which a company may expense a year’s technical improvement to one asset immediately. We describe this option and the company’s own accounting threshold in the accounting policy so that the same approach is followed every year.

For leased assets we settle who bears repairs. Routine maintenance is often paid by the tenant and major repairs by the landlord, while the tenant may depreciate an improvement only with the owner’s consent. We agree the arrangement in the lease before work starts.

What to watch out for

Distinguishing repairs from improvements is one of the most frequent topics in tax audits. If the tax office reclassifies a repair as an improvement, the expense moves into depreciation over future years and the company pays additional tax with interest for the year concerned.

A repair after an insured event is assessed the same way, but if the insurer pays for it, the insurance settlement is income. We therefore track costs and settlement together so that it is clear how much the company actually paid itself.