Announced in Budget 2025 (effective from 22 May 2025), the Investment Boost (IB) incentive promised to stimulate productive investment by giving businesses a 20% upfront deduction on new capital assets. Introduced under urgency as part of the Budget process and without the benefit of external consultation, shortcomings in the original legislation have come to light.

The Government’s August 2025 Tax Bill seeks to correct these unintended outcomes with remedial changes.

From promise to practice: where the rules stand now

The IB provides a 20% upfront deduction on the cost of eligible new depreciable property. A clawback (depreciation recovery income) applies if those assets are sold for more than their adjusted tax value. The incentive also extends to certain non-depreciable property, although that property is not subject to clawback.

Some important settings in the current rules are:

• Eligibility: Only “new investment assets” (as defined) qualify. Assets must be new to New Zealand, though second-hand assets sourced from overseas or previously held as trading stock may still qualify.
• Group and associate transfers were not clearly addressed, creating uncertainty.
• Low-value assets: Under the current legislation, the low-value asset threshold has been inadvertently increased from $1,000 to $1,250. Assets qualifying as low-value may be eligible for a full deduction under existing rules and therefore do not also qualify fora deduction under IB.
• Record-keeping: businesses must track IB claims (usually in their depreciation schedules), with disclosure in the IR10 from the 2026 tax year onwards (or 2025 tax year for late balance date taxpayers).

Proposed amendments in the Bill

The August 2025 Bill proposes a suite of remedial measures to tighten integrity, align with policy intent, and reduce compliance risks:

• Low-value asset threshold: The Bill restores the current $1,000 low-value asset write-off threshold and makes clear it applies to the original cost of the asset (i.e. before the IB deduction is applied). This prevents higher-value assets from being unintentionally brought within the low-value asset write-off rules as a result of the IB claim.
• Transfers between associates and within groups: In certain transfer situations (such as transfers between associated persons, matrimonial property settlements and transfers on death), the transferee fully steps into the shoes of the transferor. This includes inheriting the transferor’s acquisition date, cost base, depreciation profile, and any IB deduction already claimed. The Bill includes corrections to give effect to the above intent.
• Second-hand assets and improvements: The IB only applies to assets that have never previously been used or available for use in New Zealand (except as trading stock). This reinforces the exclusion of refurbished, repurposed, or locally sourced second-hand assets, even if they appear “new” in substance. The measure also extends to certain capital improvements to commercial buildings (where the improvement is capable of being treated as a separate depreciable asset). This supports initiatives such as seismic or earthquake strengthening, which would otherwise have been treated as black hole expenditure.
• Motor vehicles: A motor vehicle’s cost or tax value for FBT purposes is determined before any IB deduction is applied. This ensures FBT remains based on the vehicle’s full purchase price, avoiding unintended reductions in FBT liability due to IB claims.

Practical implications

For businesses:

• Asset registers: Businesses need to ensure their ERP or fixed asset register can correctly capture IB claims. The preferred approach, where software allows, is to retain the asset as a single line item with the IB deduction integrated (for example, using a tick box in Xero or MYOB). This enables automatic flow-through to depreciation and clawback calculations on disposal, avoiding the need for manual split entries.

For advisers:

• Inland Revenue scrutiny: In the first year of operation, Inland Revenue is expected to focus not only on whether an acquisition represents genuine new investment, but also on the timing of acquisition and when the asset became physically able and legally capable of being used.
• Definition of “new asset”: Advisers should ensure clients understand that only assets which have never previously been used or available for use in New Zealand (except as trading stock) qualify as “new.”
• Disclosure in IR10s – Disclosure of IB claims is required in the IR10 (or in financial accounts, if filed instead). For most taxpayers this begins from the 2026 return year and is expected to include the aggregate IB claimed and the aggregate value of assets on which claims have been made. Taxpayers with a late balance date (e.g. 30 June) will only need to disclose the aggregate IB amount claimed in their 2025 return. The IB claimed should be included in tax depreciation (regardless of whether it related to depreciable property or not).

Why it matters

Investment Boost was broadly introduced to stimulate business investment in productive assets more generally in a weak economy, to help address New Zealand’s infrastructure deficit and, in some cases, to make certain projects viable and able to proceed. The remedial changes correct identified deficiencies to ensure the regime operates as originally intended.

While businesses can proceed with more certainty about what qualifies, good records must be kept to support any IB claims (e.g. asset-by-asset documentation for each IB claim, (including evidence of purchase price), the date the asset was physically and legally capable of being used, depreciation calculations on the net-of-IB amount, and clawback calculations on disposal).