Podium Investments Ltd v Commissioner of Inland Revenue [2026] NZHC 1920

The High Court has denied a taxpayer’s appeal from the Taxation and Charities Review Authority (TCRA) over the tax treatment of costs incurred to undertake seismic work and to instal a glass façade on a commercial building. The taxpayer argued the costs were of repairs and maintenance and so should have been deductible while IR and the TCRA considered that the costs were on capital account and non-deductible. The High Court has upheld that conclusion.

After anchor tenants of the taxpayer’s building left, issues related to the building’s seismic integrity emerged and when a detailed assessment was made, aspects of the building were judged to be an earthquake risk. Advisers proposed a remediation scheme to achieve 100% of new build standard.

The taxpayers entered into a lease with a new major tenant in which they undertook to retrofit the building to achieve a minimum seismic rating of 80% of New Build Standard. Various contractors were engaged to undertake works to that end, including a new glass façade, upgrades to lighting, air conditioning, an addition of a lift and stairs, an addition of an atrium, upgrades to electrical boards and bathroom facilities, and strengthening car park facilities.

The taxpayer applied to the Commissioner for a binding ruling concerning the deductibility of expenditure of some $13.7 million, however, the matter could not be resolved. It then filed its returns for the 2017, 2018 and 2019 income years. It issued a notice of proposed adjustment for each of the three income years to treat 11 items of work as deductible when incurred, or as giving rise to depreciation allowances.

Before the TCRA five items of work were subject to challenge namely: ground floor glazing; the glass “canopy”; replacement of panels on the carparking levels; seismic works; and base build reinstatement costs. However, the parties reached agreement several items prior to the hearing, leaving only the ground floor glazing and the seismic works in dispute.

Crucial findings of fact were made by the TCRA and were not unseated on appeal. In particular, evidence established that both the glass façade and the seismic work were an integral part of a major capital project, in which the functional utility of the property was changed from a multi-level large format retail area into office space. It was a commercial necessity to undertake the work to secure a new anchor tenant and all the works, including the glass façade and the seismic work were required to secure the new anchor tenant, and the building performed according to minimum requirements and specifications of the new anchor tenant. The work involved the whole of the taxpayer’s property, was undertaken under centralised control and management of a contracted project manager and there were a range of contracts through which the work was performed, as would typically be the case for a major project.

Importantly, the TCRA held the glass facade was a substantial upgrade to the property, due to its visual effect, increase in amenity and increase in the rental space and in meeting the specific requirements of the new anchor tenant. The seismic work was also a significant structural upgrade to the core condition of the property, altering it from a sub- standard unsafe building into one with an acceptable seismic safety standard. These findings were significant in moving the TCRA away form a finding of repairs and maintenance for what a fundamental test is whether the capacity of a building is maintained or improved.

The High Court began its analysis with the first step of determining the object to which the test of repair or replacement is being applied. It then said that the second step involves identifying the nature and extent (scale) of the work carried out on the physical object, which is “determinative of the character of the work”. The effect of the work on the character of the object is also an important consideration. If the work is of such a nature and scale as to change the character of the object as a whole, it will amount to replacement rather than repair.

Having reviewed authorities the Court identified the following issues:

(a) Was the seismic work inseparable from other work on the building that was capital in nature?

(b) Assessed on a stand-alone basis, was the seismic work repairs and maintenance or capital in nature?

(c) Was the glass façade work inseparable from other work on the building that was capital in nature?

On the first issue, the Court held that although the seismic strengthening arguably could have been undertaken without undertaking the rest of the building work (at least physically), the overall project could not have sensibly been subject to two independent unrelated projects. It was a single project that converted a sub-standard, seismically non-compliant building into a seismically compliant, desirable office building with functional and design cohesion. There would have been little utility undertaking the other work on the Building if it could not have been used due to being unsafe and non-compliant with earthquake building standards. If the Building did not undergo seismic strengthening, it could not have been renovated into an office space capable of securing a tenant.

On the second issue the Court said there was no error in the TCRA finding that the change from a sub-standard, unsafe building into one that exceeded acceptable seismic safety standards was an improvement and a significant change to the character of the building. Though an attempt was made to argue that remediating a defective beam as part of seismic remediation made the case different, this was rejected because it could not be separated from the whole of what was done.

Similarly the installation of a new glass façade went beyond repair. There was conflicting evidence over this but the Court resolved it by saying that the focus must be on the totality of the effect of the glass façade work on the building as a whole in the specific circumstances of this case. It said the assessment is intensely fact specific and comparison with other cases is of limited assistance. Changes to the ground floor glass façade improved and modernised the overall functionality and design of the building in line with the overall project.

The lessons to take from this case? First, stand back and consider the asset being dealt with. Realistically determine if work can be separated out or must be treated as a whole. Consider the scale and scope of what has been done and its impact on the capacity and capability of the asset concerned. If the work significantly moves the asset beyond its capacity and capability before the work is undertaken, the work is likely to exceed repair and maintenance. In this case a deciding factor was that without action the building was a non-earner. This was not the same as a tenanted building being put through a seismic repair. In that case the argument would be less likely to arise that the capacity and capability of the building was altered, although the treatment of such repairs continues to vex taxpayers dealing with IR.

© G D Clews 2026