Important Update: Investment Boost - 20% Tax Deduction for New Assets
Budget 2025 was delivered on 22 May 2025, with a strong focus on investment into NZ infrastructure. But what do the Budget announcements mean for your small business?
#Budget2025 #Budget #smallbusiness
We have had a lot of clients asking about the new Government initiative.
Here are some facts:
The Investment Boost offers a 20% tax deduction for the cost of new assets in the year of purchase, effective for assets that first become available for use in New Zealand on or after 22 May 2025.
What is Investment Boost?
Investment Boost is a new deduction available to New Zealand businesses when they purchase new capital assets for their business. This deduction allows businesses to accelerate the depreciation of their assets by taking a larger deduction in the year of purchase. (NB it is not a cash refund)
Why is the Government introducing Investment Boost?
The Investment Boost aims to support productivity and economic growth by providing benefits to businesses that make new investments
Impact on Businesses: Businesses that invest in new assets will receive a tax benefit, providing more funds in the year of purchase.
How does Investment Boost work?
Businesses can deduct 20% of the cost of new assets in the year they purchase the asset. You can claim both the Investment Boost and a standard depreciation deduction in the year you purchase the asset. This accelerates the depreciation process, offering immediate financial advantages.
What assets does Investment Boost cover?
Investment Boost applies to the purchase of most assets that are depreciable for tax purposes, including machinery, equipment, and work vehicles.
It also applies to new commercial and industrial buildings that do not allow depreciation deductions.
Exclusions: Certain assets are not eligible for the Investment Boost, including:
Previously used assets in New Zealand (Second-hand used asset)
Land (though improvements like fencing may qualify)
Trading stock
Residential buildings
Fixed-life intangible assets
Assets fully expensed under other rules (e.g., assets valued below $1000)
Do I have to claim Investment Boost?
Investment Boost is optional, allowing businesses to choose standard depreciation if preferred, especially for those expecting sustained losses. Investment Boost increases the size of tax losses, which can be carried forward to future years when profits are made.
Are there any limits on the number of assets I can claim Investment Boost for?
No, there are no limits on the number of eligible assets or their value.
Can I claim Investment Boost for assets purchased from overseas?
Assets purchased from overseas, whether new or second-hand, are eligible if they have not been used in New Zealand.
Examples:
Driving Co: On 26 May 2025, Driving Co buys an EV from a Tauranga secondhand dealership for $20,000. This asset does not qualify.
On 27 May 2025, Driving Co purchases a brand-new truck from a Tauranga dealership for $50,000, which qualifies for the Investment Boost.
On 28 May 2025, Driving Co orders a used bus from Japan, arriving on 28 June 2025, costing $60,000. This asset qualifies as it is new to New Zealand.
Can I claim Investment Boost for an asset partly used in my business?
The deduction applies to the business-use portion of an asset, excluding private use.
Can I claim Investment Boost on new buildings?
New commercial and industrial buildings are eligible for Investment Boost. Residential buildings are not eligible, except for certain buildings like hotels, hospitals, and rest homes.
What if I have a construction project underway?
If your construction project started before 22 May 2025, it may be eligible for Investment Boost, provided the asset is used or available for use for the first time on or after 22 May 2025 and meets other qualifying conditions.
Are new capital improvements eligible for Investment Boost?
Yes, improvements to depreciable property are eligible if the asset being improved qualifies for Investment Boost. An example is significant strengthening of an industrial building.
What happens when I sell an asset claimed under Investment Boost?
Similar to depreciation, some or all of the deduction may be recoverable upon asset disposal if the sale price exceeds the adjusted tax value.
Can I claim Investment Boost and the R&D tax credit?
Yes, the deduction is eligible for the research and development tax credit.
More Examples:
Consider an advanced manufacturing firm investing in an environmental test chamber costing $200,000. Under normal circumstances, the firm could claim annual depreciation deductions of 10.5%, reducing taxable income by $21,000. With Investment Boost, the firm can claim 20% of the chamber's value ($40,000) as a tax expense in the year of purchase, plus the 10.5% annual depreciation on the remaining 80% ($16,800). This results in a total deduction of $56,800, offering an additional $35,800 deduction compared to the status quo, translating to a tax bill reduction of over $10,000.
Solar Co: Solar Co has been developing a solar farm since 2023, with $10,000,000 capitalised as work in progress by 22 May 2025. The solar farm is completed and commissioned on 30 June 2025, making it eligible for the Investment Boost.
Laptop Purchase: A business purchased a laptop online on 21 May 2025, delivered on 26 May 2025. This asset does not qualify as it was not available for use on or after 22 May 2025.
Investment Boost Summary – New Gym Construction
Project Overview
· Asset: New commercial building (gym)
· Total Cost: $1,730,429.64
· Completion Date: November 2025
· Usage: 100% business (no residential or private use)
· Standard Depreciation: Not permitted for commercial buildings in NZ
Investment Boost Eligibility
This project qualifies for the Investment Boost announced in May 2025, because:
The building is new and used solely for commercial purposes
It becomes available for use after 22 May 2025 (November 2025)
It has not been previously used in New Zealand
Tax Deduction & Benefit
Component Amount (NZD)
Total Construction Cost $1,730,429.64
Investment Boost Deduction (20%) $346,085.93
Applicable Corporate Tax Rate 28%
Tax Benefit (Cash Savings) $96,904.06
Ongoing Depreciation $0
Total Tax Saving in FY2026 $96,904.06
So, while the deduction reduces taxable income by $346,085.93, the actual tax saving (cash impact) is 28% of that, which equals $96,904.06.
Any questions please feel free to reach out.