2025 Investment Boost
A new tax incentive was announced in the Budget to allow businesses to deduct 20% of a new asset's value from its taxable income in the year of purchase. This is in addition to normal depreciation and is designed to encourage investment in productive assets such as machinery, equipment, and commercial buildings (excluding residential property) or, in short, to encourage businesses to start spending again.
Key Points
- In short, this is 'accelerated depreciation'. From 22 May 2025, businesses can deduct an extra 20% of a new asset's value from their taxable income in the first year. The remaining 80% of the asset value is depreciated over time using standard depreciation rules. Combined with normal depreciation, this can give your business a higher tax write-off upfront, which means less tax to pay now and better cashflow.
- Applies to new or new-to-New Zealand assets, available for use on or after 22 May 2025, and must be depreciable for tax purposes.
- Does not apply to second-hand assets sourced from New Zealand or residential rental buildings. Only new assets (or new to NZ) first used on or after 22 May 2025 are eligible. No back dating. No second-hand assets.
- The asset must be used for income-generating activity and be a capital item or depreciable asset.
- Expected to improve business cashflow, making more investment opportunities viable.
What is covered?
- Commercial and Industrial buildings. The scheme covers newly constructed commercial and industrial buildings, including farm buildings & structures like woolsheds or covered yards, that are completed and ready for use on or after 22 May 2025. Does not include the value of the underlying land. Currently, these buildings are not eligible for regular depreciation deductions, as the depreciation rate is set a 0%.
- Machinery and Equipment. This policy encompasses machinery and plant used in business operations, such as tractors, all-terrain vehicles, side by sides, drills, specialised tools and factory equipment.
- Farmland Enhancements. Improvements to agricultural land, including the creation of tracks, installation of stock water systems, bores and ponds, are also included. These types of developments are typically amortizes at a rate of 5%.
- Farm infrastructure. Investments in farm infrastructure, such as irrigation systems, new pumps, storage sheds, woolsheds and covered yards, are eligible.
- Office and Technology Assets. Office equipment and technology including servers and commercial-grade IT systems, are covered.
Here's how it works:
A business owner purchases a new asset costing $120,000. The Investment Boost gives a 20% deduction ($24,000) and 13% depreciation deduction on the remaining value ($12,480). (The scenario is based on the asset being purchased in the first month of the financial year.) This gives a total deduction of $36,480 which includes taxable income, saving $10,214 of tax at the 28% tax rate.
Below is a table showing examples of Asset purchases and the effect of the Investment Boost:
| Asset Purchased |
Purchase price |
20% Investment Boost Deduction |
Depreciation on remainder (rate dependent) |
Year 1 Deduction |
Tax Saving at 28% |
| |
$ |
$ |
$ |
$ |
$ |
| Commercial Building* |
5,000,000 |
1,000,000 |
no depreciation |
1,000,000 |
280,000 |
| Covered yards |
100,000 |
20,000 |
no depreciation |
20,000 |
5,600 |
| Woolshed |
380,000 |
76,000 |
no depreciation |
76,000 |
21,280 |
| Water System |
150,000 |
30,000 |
15,600 |
45,600 |
12,768 |
| Motor Vehicles (new Ute) |
65,000 |
13,000 |
10,400 |
23,400 |
6,552 |
| Manufacturing Plant (new) |
23,000 |
4,600 |
2,392 |
6,992 |
1,958 |
* Commercial building - new, completed June 2025 and never been used before. It is depreciable for tax purposes (even though the depreciation rate is 0% for commercial buildings, the Investment Boost still applies). An existing building which has been used before does not qualify for the Investment Boost deduction.
Surprises and some things to be mindful of:
- Depreciation Recovery on Sale: If you sell certain assets - particularly those that depreciate quickly - you may need to repay some of the depreciation claimed. This "depreciation recovery" is treated as taxable income in the year the asset was sold.
- The 20% Depreciation Explained: Remember, the 20% upfront deduction is not a "free tax break" - it is simply an earlier tax saving. The total tax you pay over the life of the asset may remain the same, the timing is what changes.
- Cash Flow Planning: When planning to purchase eligible assets, always prioritise positive cash flow. Don't let the new policy be the sole reason for making purchases - ensure they make good business sense for your situation.
What's Next?
If you have any questions about how the 2025 Investment Boost might impact you or your business, please feel free to contact our team.
The DCH Team
