Commercial Property and Businesses Changes

Commercial Property and Businesses Changes

If you’re investing in commercial property, keep your eyes peeled for further details about the new Investment Boost from Budget 2025.

From 22 May 2025, for new commercial and industrial buildings (not residential), IRD says businesses can claim 20% of the cost of new assets as a tax deduction – provided they’re used or available for use from that date.

Please note, the deduction will likely be clawed back through depreciation recovery when you eventually sell, but until then, it’s a decent interest-free loan!

Example:

  • Build a new commercial building for $1.5m, debt-free.
  • Initial tax deduction at 20% = $300,000.
  • Rent it out for $100,000 a year.
  • Even without chattels depreciation or other deductions, you wouldn’t pay tax on the rental income for the first three years

What assets does Investment Boost cover?

Investment Boost applies to the purchase of most new assets that are depreciable for tax purposes – common examples include machinery, equipment and work vehicles. Investment Boost also applies to the purchase of new commercial buildings, which do not allow depreciation deductions. Second-hand assets are generally not eligible for Investment Boost, but those that are sourced from overseas may be able to claim the deduction

Example of Investment Boost in practice for businesses

An advanced manufacturing firm decides to invest in an environmental test chamber to analyse how its products withstand extreme temperature conditions. The chamber costs $200,000. Under the status quo, the company can claim annual depreciation deductions of 10.5 per cent of the value of the chamber. This deduction reduces its taxable income in the year it purchases the machine by $21,000. With Investment Boost, the company can claim 20 per cent of the value of the chamber ($40,000) as a tax expense in the year of purchase, in addition to the 10.5 per cent annual depreciation deduction on the remaining 80 per cent of the value of the chamber ($16,800).

Together, these deductions reduce its taxable income in that year by $56,800. Compared to making the investment under the status quo, Investment Boost means the company can deduct an additional $35,800 from its taxable income in the year it purchases the chamber. This translates to a reduction of over $10,000 in its tax bill, as the company tax rate is 28 per cent, and 28 per cent of $35,800 is $10,024. At the same time, the depreciation deductions it receives in future years will be smaller because it has claimed more deductions in the first year. The company can make use of the timing advantage of receiving deductions earlier by reinvesting its additional after-tax income to increase its future returns.

What assets does Investment Boost not cover?

To ensure Investment Boost is most efficiently lifting productivity, some assets are not eligible for the deduction, including: • assets that have previously been used in New Zealand • land (although land improvements, such as fencing, may be eligible) • assets that will be held as trading stock • residential buildings (dwellings) • fixed-life intangible assets (such as patents) • assets that are fully expensed under other rules (e.g., assets valued below $1000

Key aspects of Investment Boost:

  • 20% Immediate Deduction:

Businesses can claim an immediate 20% tax deduction on the cost of eligible new assets.

  • Depreciation on Remainder:

The remaining 80% of the asset’s cost can be depreciated as usual.

  • Eligible Assets:

The initiative applies to most new depreciable assets, including machinery, equipment, and work vehicles.

  • New and Second-hand Overseas Assets:

Investment Boost can be claimed on second-hand assets purchased from overseas on or after May 22, 2025, but not on those traded within New Zealand.

  • Focus on Productivity:

The government hopes the initiative will encourage businesses to invest in assets that boost their productivity.

  • No Exclusions for Size:

All businesses, regardless of size, can benefit from the Investment Boost.

  • Example:

If a business buys a new machine for $100,000, they can deduct $20,000 in the first year under Investment Boost. They can then depreciate the remaining $80,000 in subsequent years.

  • Implementation Date:

The initiative is effective for assets first used or available for use on or after May 22, 2025.