The 2025 New Zealand Budget introduced a new tax incentive aimed at accelerating business investment and improving productivity: the Investment Boost. This measure allows businesses to claim an upfront 20% tax deduction on the cost of expenditure on certain assets or improvements (‘new investment asset’), in addition to normal depreciation. Key technical considerations include eligibility, timing of asset purchase/use, and treatment under existing depreciation and transfer rules.

What is the Investment Boost and who can use it?

The Investment Boost allows businesses to claim an additional 20% tax deduction in the income year in which an asset becomes a new investment asset, for example, when a qualifying item of depreciable property is first used, or is available for use, in deriving assessable income on or after 22 May 2025. The remaining 80% of the asset’s cost continues to be depreciated under standard depreciation rules. The deduction must still satisfy the general permission under the general deductibility rules.

Key features include:

• Applies to eligible depreciable property acquired and first used or available for use on or after 22 May 2025.
• Eligible depreciable property includes new commercial and industrial buildings (and capital improvements to existing assets), plant and machinery, and imported second-hand depreciable property that are new to New Zealand.
• A new investment asset includes expenditure on improvements to farmland, forestry land, aquacultural businesses; planting listed horticultural plants.
• Residential buildings and land (excluding certain land improvements) are excluded as are fixed life intangible property.
• The incentive is optional and cannot be used in conjunction with the low-value asset write-off (currently available for assets under $1,000).

How does it interact with existing deductions and write-offs?

Low-value asset write-off: Assets claimed as an immediate deduction under the low-value asset threshold (currently $1,000) are excluded from the Investment Boost. This avoids double-dipping on tax deductions.

Depreciation: The 20% Investment Boost is a deduction in addition to standard depreciation, but it reduces the asset’s tax book value. For example, for a $100,000 depreciable asset:

• $20,000 is deducted upfront under the Investment Boost (regardless of when acquired in an income year).
• The remaining $80,000 becomes the depreciable base and is depreciated using the standard depreciation method and rate.
• Investment Boost is recoverable along with tax depreciation previously claimed to the extent that sale proceeds exceed tax net book value.

Tracking and recording

Business owners will need to track the Investment Boost incentive claimed in relation to each asset to ensure proper recovery treatment on disposal. One option is to include two linked line items in the tax fixed asset register — for example, the 20% Investment Boost portion at 100% depreciation, and the remaining 80% portion at standard depreciation rates. Note this option assumes that the full asset cost inclusive of Investment Boost has been capitalised for accounting purposes.

The approach may vary depending on the fixed asset register software used – for example, through asset naming conventions or tagging, and whether a manual adjustment is required to ensure the Investment Boost component is depreciated in full. Evidence that the deduction was claimed on or after 22 May 2025 should also be retained for audit support.

Who can claim the deduction under leasing or ownership arrangements?

Ownership principles follow existing depreciation rules:

• Lessees and tenants making capital improvements to depreciable assets are entitled to the Investment Boost.
• Finance lease depreciable assets follow current depreciation entitlements (typically the lessee).

Transfers to associated persons 

Where there is a transfer to an associated person the associate steps into the shoes of the original owner, adopting the acquisition date and cost base for Investment Boost and depreciation purposes, and is liable for recovery of the Investment Boost incentive (to the extent required) when the asset is ultimately sold to a third party (if a gain arises). Consistent with rollover relief principles, the original owner is not subject to taxation on the asset transfer (as no gain/loss arises).

There is currently an issue with the legislation in relation to the adjusted tax value that the associate (transferee) is intended to use for tax depreciation purposes. This is expected to be corrected by remedial legislation.

What happens to projects that straddle the 22 May 2025 start date?

The incentive is intended to apply to capital improvements made to existing depreciable assets, provided the improvement is first available for use on or after 22 May 2025. Work that straddles this date may qualify, so long as the improvement is not completed or capable of being used prior to 22 May.

 ‘Available for use’ means the asset is in a condition to perform its intended business function. For purchased property, the acquisition date is typically the settlement date.

Concern has been expressed by some practitioners as to whether this intent is achieved under the legislation. At issue is whether a separate asset technically arises or whether the capital improvement is subsumed and becomes part of the building proper. Inland Revenue have been asked to provide guidance.

Final considerations

While designed to incentivise capital expenditure and productivity, Investment Boost’s interaction with existing provisions and treatment in special ownership cases will require close attention, particularly regarding asset transfers between associates, finance lease structures, and project timing. Further Inland Revenue guidance or rulings will be essential for resolving areas of legislative ambiguity and ensuring effective implementation.