New Zealand’s productivity is lagging — we are ranked 31st out of 38 OECD countries for labour productivity. To help close that gap, Budget 2025 introduced a new tax incentive – Investment Boost – aimed at encouraging businesses to invest in new assets and modernise their operations.
One major barrier to investment has been the high cost of capital. Investment Boost tackles this by allowing businesses to deduct 20% of the cost of eligible new assets from their taxable income in the year the asset is purchased. This upfront deduction is intended to reduce tax bills, lower the cost of capital, and stimulate investment across all sectors.
How it works
The deduction applies to new investment assets that become available for use in New Zealand on or after 22 May 2025. Assets must be genuinely new to the country (not previously used here), except if they were inventory, held for sale. However, some assets are excluded, including residential dwellings, petroleum and mining rights, and fixed-life intangible assets.
The deduction is calculated with 20% of the asset’s cost, minus any capital contributions or government grants. For example, if a business buys an asset for $10,000 and receives a $1,000 grant, the deduction is 20% of $9,000 — that’s $1,800. The remaining value ($7,200) is then depreciated using standard rates.
Impact on depreciation
Investment Boost reduces the asset’s tax value, which means future depreciation claims are based on a lower amount. For instance, a $10,000 asset with a $2,000 deduction would be depreciated from a base of $8,000.
If the asset is sold or transferred, the deduction is included in the depreciation recovery calculation. If transferred to an associated entity, the new owner inherits the deduction and must adjust future depreciation accordingly.
There are also rules for changes in asset use. If business use drops by more than 25%, part of the deduction may be clawed back as income.
Who benefits
The scheme is open to businesses investing in new capital assets, except residential property. However, it’s most beneficial for businesses ready to invest in the short to medium term. The deduction is claimed at the end of the tax year, so it doesn’t offer immediate cashflow relief.
The Government expects a surge in interest and a dip in tax revenue for the 2026 tax year as businesses take advantage of the scheme.
Bottom line
Investment Boost is a bold move to lift New Zealand’s productivity. It offers immediate tax relief for new investments and encourages businesses to upgrade and grow.
Businesses will need to carefully assess asset eligibility and understand the long-term impact on depreciation and asset disposal.
We welcome any questions you may have about Investment Boost; feel free to contact the office or reach out to your MCI adviser.