Investment boost – game changer for business or white elephant?

The investment boost tax deduction introduced in this year’s Budget is the Government’s flagship measure to encourage businesses to invest in new, productive, assets.

In a nutshell, qualifying assets acquired on or after 22 May 2025 will be entitled to an upfront 20% tax deduction. This will be in addition to any tax depreciation that can be claimed, although the investment boost will reduce the cost of the asset for depreciation purposes. So, this is a first-year tax depreciation boost.  

Qualifying assets are any capital asset used in a business, or to derive taxable income, that has not previously been used in New Zealand and is depreciable (or otherwise amortisable) for tax purposes. 

Second-hand assets that are “new to New Zealand” (i.e. imported/purchased from overseas on or after 22 May 2025) and certain land improvement expenditure are within scope. Also within scope are non-residential (that is, commercial and industrial) buildings even though these have a 0% depreciation rate for tax purposes. 

Not within scope are residential buildings, land, intangible assets with a fixed legal life and assets which are already immediately deductible for tax purposes.  

Importantly, new additions or capital improvements to existing (that is, pre-22 May 2025 acquired) assets will qualify for the investment boost deduction if the addition or improvement only becomes “available for use” on or after 22 May 2025. The deduction will be limited to 20% of expenditure incurred on or after this date. 

The economic impact 

The Government estimates the investment boost will cost $1.67 billion per annum and will raise New Zealand’s GDP by 1% and wages by 1.5% over the next 20 years. Half of this economic benefit is expected in the first five years. The investment boost seems to have been designed to walk the tightrope of delivering some targeted business tax relief, while limiting the fiscal impact. The Government considers that this measure should deliver “better bang for buck” than a corporate tax rate cut given the high fiscal cost of cutting company tax generally.

What does investment boost mean for business?

After several Budgets with little to no tax relief, the investment boost tax deduction will be welcomed by many in the business sector. The billion-dollar question is what impact will it actually have? 

While an additional 20% tax deduction in the first year of a new asset acquisition seems appealing, the impact will be different for different businesses. Some examples illustrate: 

• • Because the investment boost, in most cases, will simply bring forward tax deductions that would otherwise have been allowed over the life of an asset, a business that is in a tax-paying position will value it more than a business making tax losses. 
  • Similarly, businesses in capital intensive industries, or looking at significant asset purchases (like a new piece of plant with a long economic life), are likely to benefit more than those businesses that are labour intensive, do not have significant capital investment intentions, or have significant intangible assets. 
  • The investment boost is a clear winner for owners of qualifying commercial and industrial buildings as it will result in a tax deduction that would not otherwise be available, with the removal of tax depreciation from the beginning of the 2024 tax year. Importantly, it will mean that capital expenditure, such as on seismic strengthening, will receive some tax relief. 

However, as discussed below, businesses will need to invest the time and effort (and some cost) to understand if investment boost is right for them, maximise any benefit, and ensure that they are getting compliance right if claiming it.

Practical impacts and potential pitfalls for businesses to be aware of 

There will be impacts for businesses’ existing enterprise resource planning (ERP) and accounting systems, as well as processes, from implementing the investment boost.   

Fixed-asset systems will need to account for the investment boost in the acquisition year, adjust the cost base for tax depreciation purposes accordingly, and track the investment boost deduction over the relevant asset’s holding period. The latter is because the investment boost deduction will need to be added back as “recovery income” if the asset is sold for more than its tax book value (similarly to recovery of tax depreciation). 

If systems, or processes, are manual or spreadsheet-based, extra care and controls will be needed to prevent errors, such as the investment boost inadvertently being claimed in multiple years.  

In some cases, the cost of systems updates and/or the additional administration required may exceed the value of the investment boost tax benefit. Particularly, for lower value assets or assets with high tax depreciation rates already. So, depending on a business’s asset profile, some may decide that the additional systems and compliance cost is not worth it. 

From a tax governance perspective, tax policies and procedures will also need to be updated. This is to ensure compliance with the requirements to claim the investment boost deduction, including:  

• • Whether the asset is “NZ new”. How/is the business able to establish that it has not previously been used in NZ by anyone else? This may be easier for some assets (e.g. buildings) than others (e.g. motor vehicles). Ultimately, the onus of proof will be on taxpayers, if investment boost deductions are reviewed by Inland Revenue. 
  • When the asset is “available for use”. This will be a critical factor in whether the investment boost is available and also which income tax year the deduction can be claimed in. The investment boost is only available for assets that first become available for use on or after 22 May 2025 and expenditure on additions/improvements to existing assets incurred on or after this date. This is relevant because the asset may technically have been available for use before this date, even if it is not actually being used, and some expenditure (particularly on long-running capital projects) may straddle this date. In the case of a non-residential building (or related capital expenditure), for example, this will be the difference between a 20% deduction and no deductibility whatsoever. It will also be relevant when determining if the deduction is being claimed in the correct tax year, which is likely to be of interest to Inland Revenue if the quantum of expenditure is significant.     
  • The valuation of assets on disposal, due to the recovery mechanism. For example, as part of a purchase price allocation when the sale of the asset is part of a larger transaction. While not a new requirement, again, we expect this is likely to be a focus area for Inland Revenue, particularly if the investment boost is being claimed for building-related expenditure, which would otherwise not be deductible and where there is no recovery of this amount on sale due to the allocation adopted.  
  • When greater certainty should be sought. Depending on the type of asset and/or quantum of expenditure involved, and if there is some uncertainty as to whether/when the available for use threshold is crossed, businesses may wish to consider a tax ruling from Inland Revenue on the application of the investment boost. 

In summary

While the legislation the implementing investment boost was passed on Budget night, the surprise nature of the announcement means there is a lot of detail that is still to be worked through. We are expecting Inland Revenue to issue further guidance in the coming months, which hopefully addresses some of the outstanding questions. 

So, is investment boost a game changer or a white elephant? The answer is likely to be somewhere in the middle. We expect it will be of significant benefit to some businesses and less so for others, when factoring in some of the practical issues with trying to claim it. But all businesses should invest the time to work out whether, and when, it will be relevant.