As part of Budget 2025, the Government announced the Investment Boost incentive to help stimulate investment in the New Zealand economy.

For taxpayers that acquire depreciable property on or after 22 May 2025, which has not been used in New Zealand previously, then a one-off tax deduction equal to 20% of the cost of the property can be claimed as a tax deduction.  This one-off tax deduction is treated as a depreciation deduction.

 Depending on the type of property acquired, depreciation can still be claimed as normal using the depreciation rates set by Inland Revenue.

 As a result of this announcement, we have had a number of enquiries from clients wanting to understand the impact of the Investment Boost deduction.  These enquiries have shown that there is not a great understanding of how the Investment Boost deduction works and the impact on taxpayers.  For example, we have heard stories where taxpayers thought they were going to get 20% of the cost price of the property refunded by Inland Revenue – this is not true.

The ”additional” tax deduction is equal to 20% of the cost price of the property; however, the tax benefit is the taxpayer’s marginal tax rate multiplied by 20%.  For a company (tax rate of 28%), the tax benefit is in fact 5.6% (20% x 28%) of the property’s cost price.  So, for an item of depreciable property owned by a company with a cost price of $100,000, the tax benefit of the Investment Boost would be $5,600.

Despite the above, when it comes to depreciable property, the Investment Boost tax benefit is not a permanent tax saving – it is purely a timing difference.  As the Investment Boost deduction is deemed to be a depreciation claim, it means taxpayers are getting a greater depreciation claim upfront but less of a depreciation claim in the future than otherwise.  Once an item of depreciable property is sold, and the loss on sale or depreciation recovered is accounted for, a taxpayer will have exactly the same tax deductions as they otherwise would have if the Investment Boost deduction were not available.  In general, this means that over the life of the asset, there are no tax benefits from claiming the Investment Boost deduction.  The only benefit is the time value of money from getting a greater tax benefit upfront and less of a tax benefit in the future.

The following example highlights this.

Example

A company purchases a new vehicle, which is eligible for the Investment Boost deduction, for $100,000.  Inland Revenue’s depreciation rate for the vehicle is 30% diminishing value (DV).  In the 5^th year of ownership, the vehicle is sold for $45,000.  GST is ignored for the purposes of this example.

As you can see from the example, the net of depreciation deductions and depreciation recovery income is the same under both scenarios, being $55,000.  The tax benefit is also the same under both scenarios, being $15,400.  The differential in the tax benefits between the two scenarios decreases over time, but over the life of the asset is the same.  The only benefit to the taxpayer is the time value of money on the tax benefit differential, which in this example would be insignificant.

Our advice – if there is a need in your business to purchase an item of depreciable property, then go ahead and buy it, the Investment Boost deduction should not be the reason for purchasing the item.  Tax is always something to consider when purchasing items of depreciable property; however, it should not be the driver of the decision.