Tax Updates: 29 September 2025

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at richard@gilshep.co.nz.

The ins & outs of the Investment Boost deduction

In a May edition of AWIR, I briefly mentioned that Budget 2025 had introduced the Investment Boost—a deduction for new investment assets. The relevant legislation was included in the Taxation (Budget Measures) Act 2025, which was passed on 23^rd May 2025.

Since that edition, I have received numerous questions surrounding the new deduction, so I thought it would be useful to provide a more detailed article on the topic.

The deduction will apply to new investment assets, which are depreciable property (or an improvement to depreciable property) and are first used (or available for use) on or after 22^nd May 2025. For other new investment assets, the amendment takes effect for expenditure incurred on or after 22^nd May 2025.

The list of new investment assets includes:

• all depreciable property except residential buildings (any building that is configured as a dwelling) and FLIP (fixed life intangible property)—so commercial and industrial buildings qualify;

• improvements to depreciable property (say, replacing the motor in an existing truck post 22^nd May 2025), including existing depreciable property (other than to residential buildings and FLIP);

• primary sector land improvements; and,

• assets acquired as petroleum development expenditure and mineral mining development expenditure (except rights, permits or privileges).

If the asset qualifies for the Investment Boost, you will obtain an immediate tax deduction of 20% of the asset’s cost (claimed as an ordinary expense deduction in the relevant income tax year), plus the usual depreciation you would then claim for the asset previously. Naturally, your cost base for depreciation purposes is reduced by 20%.

To illustrate (ignoring the part-year depreciation calculation and any GST aspects), say you purchase a new motor for $50,000, which has a depreciation rate of 30%. In your March 2026 income tax return, you would claim an immediate deduction of $10,000 and a depreciation deduction of $12,000, so a combined deductible expense of $22,000.

If you are GST registered, then usually the Investment Boost deduction and accompanying depreciation claims will be based on the GST-exclusive cost of the new asset.

The new investment asset must not have been used in New Zealand (NZ) before 22^nd May 2025, other than as trading stock. So NZ purchased second-hand goods, or those initially used for private purposes, are not covered by the new Investment Boost deduction. A second-hand good acquired from overseas may be covered, but only assets used in NZ by you will qualify. Any assets of yours that are used overseas will not. And to clarify the trading stock comment, if another NZ business uses the asset as its trading stock (for example, a car dealership which has an imported vehicle where that vehicle has only sat in a sales yard while in NZ), then the NZ business acquiring that asset should be entitled to claim the Investment Boost.

Even though certain commercial and industrial buildings now have a depreciation rate of 0%, the Investment Boost still applies to these assets. However, if a commercial building is configured as a residence or abode, it is not eligible for the Investment Boost. Even if it is said to be used for commercial purposes (which could include short-stay accommodation). However, there are several exceptions to this, so you should check the list of exclusions from the dwelling definition just in case your asset may still qualify.

Assets used partly for business may still qualify for the Investment Boost, naturally apportioned to reflect the mixed use of the asset itself. However, for integrity purposes, if there is a subsequent reduction in use of the asset of 25% or more, then you may have to return some of the previous Investment Boost deduction as income.

If you happen to receive a capital contribution or a government grant to assist you with the asset purchase, then the Investment Boost deductions and subsequent depreciation deductions are calculated net of the amount received (unless, for the capital contribution, you elect to treat the amount received as income instead). And talking of government assistance, if you are eligible for Research and Development Tax Incentives, the Investment Boost deduction is effectively treated as a depreciation loss for determining the amount of the credit in the relevant income year.

If you subsequently dispose of the asset, for depreciation recovery income purposes, you take the original cost of the asset (before the Investment Boost deduction) for determining the quantum of income to disclose, which may see you paying back some of the investment boost deduction. So, using our earlier example, if you sold the motor vehicle for $60,000 when its tax book value was $30,000, your depreciation recovery income would be $20,000 and not $10,000 (being based on the original motor vehicle cost of $50,000).

There is no special application process for claiming the Investment Boost deduction; you simply claim the entitled amount in the relevant year’s income tax return. As always, if you’re unsure about what can be claimed, do not hesitate to reach out to me accordingly.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.