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Rovers Ltd (Rovers) owns a 200-room inner city hostel in Christchurch. Its business has shrunk considerably over the past 3 years due to the impact of COVID-19 on inbound tourism. In 2022, Victoria University of Wellington (VUW) announced its intention to open a new satellite campus in Christchurch, which requires residential accommodation for its students. VUW enters into an agreement with Rovers to place its students in 120 rooms in the hostel for 10 years. Each year VUW will pay Rovers a discounted rate for renting the 120 rooms. Rovers will continue to rent out the remaining 80 rooms as it has in the past. The terms of the VUW agreement require Rovers to undertake the following work:

1. Repaint half of the exterior of the building in VUW colours, which dominantly feature VUWs name and logo.

2. Replace all electrical wiring in the kitchen.

3. Turn the existing two lounges into a single open plan common room and replace the worn-out carpet.

4. Modify the goods lift so that it can carry passengers.

5. In the 120 rooms leased by VUW:

(i) Replace all rusty pipes and fittings in the bathrooms.

(ii) Construct additional built-in wardrobes, desks and cupboards, and install a heat pump, mini-fridge, microwave oven, kettle and Nespresso coffee making machine in each room.

Required:

Advise Rovers on how much (if any) of the expenditure incurred on items (a)(e) above is deductible under Subpart D of the Income Tax Act 2007. Give specific section references to support your answers.

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