Budget 2025: Investment Boost a Game-Changer for Business Asset Depreciation in New Zealand

Breaking Down the New Investment Boost for NZ Businesses

In a significant move for the business community, Budget 2025 has introduced enhanced tax deductions for business asset purchases under a ‘Investment Boost’ initiative. While there had been rumors about full asset expensing, the government has instead delivered a balanced approach with the new Investment Boost rules, which allows businesses to immediately deduct 20% of new asset costs.

With an annual fiscal impact of approximately $1.7 billion, this change represents a substantial commitment to stimulating business investment across New Zealand. The government projects that this initiative will increase GDP by 1% and lift wages by 1.5% over the next two decades – making it one of the most impactful business tax reforms in recent years.

How the Investment Boost Works

The new Investment Boost provides an immediate 20% tax deduction on the cost of new business assets or improvements to existing assets, effective from May 22, 2025. The remaining 80% of the asset cost will continue to be depreciated according to standard schedules.

What makes this particularly noteworthy is that commercial buildings, which are currently non-depreciable, will qualify for this 20% upfront deduction – offering a significant benefit to property investors and developers.

A Practical Example – How the Investment Boost Works

To illustrate how this works in practice:

If your business purchases a new piece of equipment costing $100,000 with a standard depreciation rate of 10%, the tax benefits would be:

• Immediate 20% tax deductible amount of: $20,000
• First-year depreciation on remaining value: $8,000 (10% of $80,000)
• Total first-year deductions: $28,000

Compare this to the previous system, which would have allowed only $10,000 (10% of $100,000), in depreciation deductions in the first year. The Investment Boost effectively provides a $18,000 additional deduction in year one, significantly improving cash flow for investing businesses.

Learn more about depreciation: Understanding Depreciation: A Key to Maximizing Your Tax Benefits

What Assets Qualify for the Investment Boost?

The Investment Boost applies broadly, but with important limitations that businesses need to understand:

Eligible Assets under the Investment Boost initaitive:

• Most new depreciable assets
• Commercial buildings
• Assets new to New Zealand
• Capital improvements to existing assets
• Farm and forestry improvements (such as fencing)
• Listed horticultural plants
• Improvements to aquacultural businesses
• Certain petroleum and mineral mining development expenditure

Ineligible Assets for Investment Boost:

• Previously used assets (second-hand). But second-hand assets from overseas are eligible because these increase the capital stock.
• Land (though improvements to land qualify)
• Trading stock
• Residential buildings (with exceptions for hotels, hospitals, and rest homes)
• Fixed-life intangible assets like patents
• Assets already expensed under other rules (e.g., low-value assets under $1,000)

Key Details Businesses Should Know about Investment Boost

The Investment Boost comes with several important features that businesses should be aware of:

• Optional application: Businesses can choose whether to apply the new rules
• No size limitations: Available to businesses of all sizes
• No value thresholds: Applies to eligible assets regardless of cost
• Timing matters: Only assets first used or available for use from May 22, 2025 (Budget Day)
• Recovery rules apply: If an asset is later sold for more than its tax book value, the Investment Boost deduction may be clawed back
• R&D compatibility: The Investment Boost deduction can be included in R&D tax incentive calculations

Strategic Considerations for Businesses

For business owners the Investment Boots initiative presents several strategic considerations:

1. Timing of investments: Businesses with asset purchases after May 22, 2025, will benefit from the Investment Boost. Investment Boost reduces taxable income by the amount of the deduction. If your business makes a tax loss, using Investment Boost concessions will increase the size of that tax loss.
2. Asset selection: The requirement for assets to be new may influence decisions between new vs. used equipment.  Second-hand assets from overseas are eligible because these increase the capital stock, whereas secondhand assets purchased within New Zealand do not.
3. Cash flow planning: The enhanced first-year deductions will improve short-term cash flow, potentially freeing up capital for additional investments
4. Building improvements: Commercial property owners should review planned improvements, as these will now qualify for the 20% immediate deduction
5. Record-keeping: Ensure proper documentation of when assets are first used or available for use to establish eligibility

What the Boost Scheme Means for New Zealand’s Economy

The government’s decision to implement the Investment Boost rather than full expensing appears to be based on economic modeling that indicated a 20% immediate deduction would optimize economic benefits while managing fiscal constraints.

By encouraging businesses to invest in productive assets, the measure aims to increase productivity, boost economic growth, and ultimately improve wages across the economy. The projected 1% increase in GDP over 20 years represents significant cumulative growth for the New Zealand economy.

Next Steps for Businesses

The Taxation (Budget Measures) Bill (No 2) will be expedited to provide certainty around Investment Boots eligibility and implementation details. Businesses should:

1. Review planned capital expenditure in light of the new rules
2. Consult with tax advisors to understand how the Investment Boost applies to specific situations (before buying, not after!)
3. Watch for additional details when the Tax Bill commentary is released
4. Consider how to maximize benefits from this new initiative as part of broader business planning

Conclusion: The Investment Boost is Positive Step

Overall, the Investment Boost scheme represents a significant positive change for New Zealand businesses. While not as generous as full expensing would have been, it strikes a pragmatic balance between stimulating investment and managing fiscal responsibility.

By encouraging businesses to invest in productive assets, this measure should contribute to improved productivity, competitiveness, and growth across the New Zealand economy – making it one of the most business-friendly aspects of Budget 2025.

For personalized advice on how your business can benefit from the new Investment Boost, we recommend consulting with your tax advisor to develop strategies that maximize the advantages of this welcome tax change.

For more information on Budget 2025 see our other article: KiwiSaver Changes 2025: What You Need to Know About the New Rules

Contact Business Like NZ Ltd should you need any specific advice.