This article was prepared by Robyn Walker for Deloitte and is being published by the New Zealand Herald as advertorial.
Budget 2025 has given businesses a welcome boost to tax deductions for investing in assets.
While speculation has been rife in the last week that the Budget would include full expensing of assets, for many the idea of such a change was absurd due to the corresponding fiscal cost.
With an estimated annual cost of $1.7 billion, Budget 2025 has delivered on depreciation changes, not as generously as some would have liked, but more generously than many would have predicted.
What is proposed: Investment boost
Effective immediately, businesses will be able to deduct 20% upfront of the cost of any new assets (or improvement to existing assets). The balance of the asset cost will continue to be depreciable (if depreciation deductions apply). While commercial buildings remain non-depreciable, they will be eligible for the 20% investment boost.
Urgent Budget legislation in the form of the Taxation (Budget Measures) Bill (No 2) (“the Tax Bill”) will be quickly enacted to give businesses the certainty they need about what is or isn’t eligible.
The Government estimates that increased investment in assets will lift GDP by 1% and lift wages by 1.5% over the next 20 years. It is understood officials advised the Minister of Finance a 20% expensing regime was the most optimal solution to boost investment.
What is eligible
Investment Boost will apply to most new assets that are depreciable for tax purposes; it will also apply to commercial buildings. Critically, the assets must be new, or new to New Zealand; second-hand assets will not qualify.
In the year an asset is acquired, 20% can be claimed upfront and depreciation can be claimed on the balance.
For example, if an asset costing $100,000 with a 10% depreciation rate is acquired on the first day of the tax year, an immediate deduction is available for $20,000, and a depreciation deduction of $8000 (being 10% of $80,000). This gives total deductions in year one of $28,000, as compared with $10,000 under existing rules.
What isn’t eligible
More detail will be included with the Tax Bill commentary, but it’s anticipated certain assets will be ineligible:
· Assets that have been previously used in New Zealand
· Land (but land improvements will be eligible)
· Trading stock
· Residential buildings (there will be exceptions for hotels, hospitals and rest homes)
· Fixed-life intangible assets (such as patents)
· Assets that are expensed under other rules (for example, low value assets below $1000)
Other important details
· The new rule will be optional;
· There are no limitations on who can use the rules, it applies to businesses of all sizes, and assets of any value;
· The rules will apply to assets which were first used or available for use on or after May 22, 2025. This will create some boundary issues for businesses who were in the process of purchasing or constructing assets to understand when something is eligible. This should be made clear in the Tax Bill commentary.
· Capital improvements of existing assets (for example, seismic strengthening of buildings) should be eligible.
· Depreciation recovery rules will apply to claw back the Investment Boost deduction if an asset is sold for more than its book value.
· The rules will also apply to assets which have deductions under separate taxation regimes which are akin to depreciation. This includes improvements to farm and forestry land (such as fencing), planting of listed horticultural plants, improvements to aquacultural businesses, and certain kinds of petroleum development expenditure and mineral mining development expenditure.
· The Investment Boost deduction can be included in R&D tax incentive calculations.
Overall, this is a really positive change for businesses.
Explore Deloitte’s Budget 2025 insights here.