Investment Boost comes into force immediately. Photo: 123RF
- Businesses can immediately deduct 20 percent of the cost of a new asset, on top of depreciation
- The new policy will cost an average of $1.7 billion a year in reduced revenue
- Businesses can still choose to depreciate assets under the standard rules
The government is rolling out a new tax incentive with the hope of encouraging businesses to invest.
As part of this year's Budget, the government's Investment Boost policy would allow a business to immediately deduct 20 percent of the cost of a new asset on top of depreciation.
Finance Minister Nicola Willis said it would lead to a "much lower tax bill in the year of purchase".
"Cash flows are better, making more potential investments stack up financially."
Investment Boost would come into force immediately, and apply to assets purchased in New Zealand as well as new and used assets imported from overseas.
"It includes commercial buildings but excludes land, residential buildings, and assets already in use in New Zealand."
Willis said there was no cap on the value of eligible investments and all businesses could benefit.
"In practice, the policy will reward businesses who make new investments by reducing their tax bills in the year they purchase new assets.
Nicola Willis. Photo: RNZ / Samuel Rillstone
"For example, with Investment Boost, an advanced manufacturing firm that purchases a $200,000 environmental test chamber would reduce its tax bill by more than $10,000 in the year of purchase."
The new policy was expected to cost an average of $1.7 billion per year in reduced tax revenue.
Treasury and Inland Revenue estimated the policy would improve GDP by 1 percent, wages by 1.5 percent and capital stock by 1.6 percent over the next 20 years. They expected around half the gains in the first five years.
The government said Investment Boost would be optional for new assets, and businesses could choose to depreciate assets under the standard depreciation rules - which may suit firms which expected to make sustained losses, such as start-ups.
Accounting firm Deloitte's partner Robyn Walker said the depreciation changes were a "welcome boost".
"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," Walker said.
"Overall, this is a really positive change for businesses."
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