Investment Boost – 20% Tax Deduction for New Assets

The Government’s 2025 Budget has introduced a new tax incentive called the Investment Boost, designed to encourage businesses to invest in new productive assets. This initiative allows for an immediate 20% tax deduction on eligible new capital investments, helping to reduce your tax bill.

What is the Investment Boost?

Businesses can claim an upfront 20% tax deduction on the cost of new qualifying assets that were available for use on or after 22 May 2025. The remaining 80% of the asset value is depreciated over time using standard depreciation rules.

The 20% investment boost will apply as a tax deduction in the financial year in which it was first available for use by the business.

What Assets Are Eligible?

The deduction applies to new capital assets such as:

–     Commercial and industrial buildings (excluding the land component)

–     Machinery and plant (e.g. cranes, specialised tools, factory equipment)

–     Farm infrastructure (e.g. irrigation systems, new pumps, fencing, storage sheds)

–     Office equipment and technology (e.g. servers, commercial-grade IT systems)

–     Certain improvements to assets that can be separately identified and        depreciated

–     Assets or improvements to assets which are being constructed, built or manufactured prior to 22 May 2025, as long as they are first ready for use only on or after 22 May 2025.

–    Certain non-depreciable assets like improvements to farmland, forestry land and aquacultural business are also eligible. Although only expenditure incurred from 22 May 2025 onwards is eligible for the investment boost. This is different to how the investment boost is calculated above for depreciable assets.

What Assets Are Not Eligible?

The investment boost does not apply to the following:

–     Assets that have previously been used in New Zealand

–     Land (although land improvements, such as fencing, may be eligible)

–     Assets that will be held as trading stock

–     Residential buildings (dwellings)

–     Fixed-life intangible assets (such as patents)

–     Assets that are fully expensed under other rules (e.g., assets valued below $1000).

Who Can Benefit?

All business entities operating in New Zealand are eligible, including trusts and sole traders, provided they acquire eligible depreciable assets.

What You Need to Know

Only assets that are new (or new to NZ) are eligible.

You cannot claim the investment boost for second-hand assets that are sourced from New Zealand. Residential rental buildings as well as most intangible assets are also generally excluded from being eligible.

There are some exemptions that allow for certain trading stock to be eligible, for example imported or new cars that were used as test cars prior to sale.

The asset must be used for income-generating activity. If there is a mix between business and personal use of the asset, there may be a reduction in the amount of investment boost available.

The 20% is a tax deduction, not a tax credit – if it results in a loss, it may be carried forward.

When the asset is sold, the investment boost deduction may be recovered and returned as taxable income, if the sale price is above 80% of the original purchase price.

Example – Eligible for Investment Boost

Queen City Carriers is a transport and logistics business that wants to expand its fleet of trucks in Auckland. They invest in 4 new trucks for $75,000 each (excl. GST), and expand their fenced parking lot to accommodate them – at a cost of $200,000 (excl. GST) for new fencing.

In total, all the new trucks ($300,000) and the land improvements ($200,000) cost $500,000 (excl. GST). Queen City Carriers can claim 20% of the total cost as a deduction in that year’s tax return – that’s $100,000.

Queen City Carriers can claim depreciation on the remaining 80% of the cost of the new assets ($400,000) over the effective useful life of the assets.

Example – Not Eligible for Investment Boost

ABC Limited is looking to purchase a new motor vehicle for business purposes. They purchase a second-hand car from a Turners car dealership for $40,000 (excl. GST). As this car had previously been used in New Zealand (excluding for test driving purposes), then it was not eligible for the 20% investment boost tax deduction.

In Summary

This incentive provides an excellent opportunity to bring forward productivity-enhancing investments while reducing taxable income.

If you would like to discuss your eligibility or review planned purchases to maximise your benefit, please get in touch with us.