Investment Boost
On 22 May 2025, as part of the 2025 Budget, the Government introduced a new tax incentive called the ‘Investment Boost’, aimed at encouraging capital investment. It allows an immediate upfront deduction for 20% of the cost of an eligible asset. The new legislation applies from 22 May 2025.
The Investment Boost applies to a broad range of
assets, such as tools, machinery, vehicles, improvements to farmland, aquaculture business, forestry land and the planting of listed horticultural plants.
In relation to depreciable assets, it needs to be new or used in New Zealand for the first time. Eligibility is based on when the asset is first used or available for use, hence if construction of an asset began prior to 22 May 2025, but the asset is not available for use until 22 May 2025 (or after), the investment boost deduction can be claimed.
The 20% deduction is on top of standard depreciation, which is then calculated on the reduced base (i.e. 80% of the asset’s cost).
A surprising aspect of the regime is that it applies to new commercial buildings. This is significant given commercial buildings are ordinarily subject to a 0% depreciation rate.
Improvements to depreciable property may qualify for the Investment Boost in their own right, even if the asset itself is not eligible for the Investment Boost (i.e. the asset was used prior to 22 May 2025).
Where an asset is only used partially for business use, the deduction will need to be apportioned. When an asset is sold, if the sales price is above the assets adjusted tax value, this will trigger depreciation recovery income.
From a practical perspective, businesses will need to determine if their fixed asset systems can:
account for the immediate upfront deduction,
apply the standard depreciation rate to the reduced cost base, and
retain the full asset’s cost to ensure depreciation recovery income is calculated correctly.
If business systems lack flexibility, then manual adjustments may be required, which increases the risk of errors occurring.
Assets which are not technically “depreciable property” but are currently allowed depreciation-like deductions, such as improvements to farmland, are eligible. However, eligibility is not based on use or availability for use. Instead, the 20% deduction is based on the amount incurred on or after 22 May 2025.
Although, the benefit of the Investment Boost is arguably timing in nature, businesses have reacted favourable and it may ultimately drive the increase in capital investment the Government is looking for.