Great news regarding the he new Investment Boost from the latest Budget - it sounds fantastic, right? However, it’s important to understand the long-term implications of this tax incentive. Upfront tax benefit looks great, but in reality, it may just be an advance in later deductions.
Available from May 22nd 2025. Available onn all eligible assets with no value limit. This includes new commercial and industrial buildings. Assets that were under construction on 22 May 2025 (but are not yet used, or which would be available for use for the first time after 22 May 2025) will also be eligible. Eligible assets include improvements to farmland, planting of listed horticultural plants, improvements to aquacultural businesses and improvements to forestry land.
But wait! Here’s what you need to know:
1. Year 1 Benefits:
Let’s say you purchase a piece of machinery worth $80,000. With the Investment Boost, you get to claim an additional 20% depreciation in the first year. (Less later however)
Here’s the breakdown: Year 1: You can claim $16,000 (20% of $80,000) on top of the normal depreciation deduction.
Under the normal depreciation (10.5%): In the first year, you would claim $8,400 (10.5% of $80,000).
Total in Year 1: $24,400 ($16,000 from the Investment Boost + $8,400 standard depreciation).
Howeverm in the second year, you’ll only be able to claim depreciation based on the reduced value of the machinery after the first year’s larger deduction:
Year 2 (Standard Depreciation after Investment Boost): You’re now claiming depreciation on $55,600 (the original $80,000 minus the $24,400 claimed in Year 1 above) = $5,838 (10.5% of $55,600).
Year 2 Under the normal depreciation (without Investment Boost Y1): $7,518 (10.5% of $71,600)And the third year:
Year 3 (Standard Depreciation after Investment Boost): You’re now claiming depreciation on $49,762 (Y2 $55,600 - Y2 depreciation $5,838) = $5,225 (10.5% of $49,762).
Year 3 Under the normal depreciation (without Investment Boost Y1): $6,728 (10.5% of $64,082)
So, in subsequent years, you’ll be claiming lower depreciation compared to if you hadn't taken the Investment Boost. The total depreciation over the asset’s life doesn’t actually change too much - it’s just been shifted to year 1.
It’s Not Extra Savings, Just Advanced Deductions:While you get a tax perk in Year 1, the overall depreciation you claim will be lower in the years that follow. The tax benefit isn't extra - it’s advanced to the first year. The total depreciation over the life of the asset will be about the same as it would have been without the Investment Boost.
Selling the Asset Early? Be careful about overclaimed depreciation. If you plan to sell the machinery within, say, 3–5 years, here’s where things can get tricky. After claiming the larger depreciation in Year 1, the machinery’s book value on paper is much lower than its actual market value.
Let’s say you sell it in Year 3 for $50,000. The book value at that point is just $47,680 (after accounting for the depreciation over the first two years).
Now, since you sold it for $50,000, you’ve essentially overclaimed depreciation, and now you’ll have to pay tax on that difference - meaning you’ll end up with a tax bill to make up for the overclaimed amount.
While the Investment Boost can help your cash flow in the short term, it’s crucial to think beyond just the tax break. If you're buying assets purely for the tax benefit, you're likely missing out on what is in the bigger picture. Make sure the investment makes sense for your business in the long run, not just in terms of the immediate tax savings.
Want to dive deeper? Click the link below to get the full Budget Factsheet or contact us to discuss whether applying the Investment Boost makes sense for your next asset purchase.
Investment Boost Factsheet: https://budget.govt.nz/.../l25a-factsheet-investment...Give us a call to chat about how we can support you and your business.
