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The headline tax (and tax adjacent) changes in this year’s Budget are:

• A new 20% “investment boost�� tax deduction for new business assets.
• Changes to key KiwiSaver settings, including increases to both employer and employee minimum contribution rates and reductions in Government contributions.

For business, the new investment boost will mean that acquisitions of new qualifying business assets, from 22 May 2025, will receive an upfront 20% tax deduction. 

This will be in addition to any tax depreciation that can be claimed (although in the year of acquisition, the cost base for tax deprecation purposes will be reduced by the 20% investment boost allowance). 

Any asset used in a business that has not previously been used in NZ and is depreciable property for tax purposes will qualify for the investment boost deduction. 

There are some exceptions: land, residential buildings, intangible assets and assets which are already immediately deductible for tax purposes. 

There are also some notable inclusions: second-hand assets that are “new�� to NZ (i.e. imported/purchased from overseas on or after 22 May 2025) and certain land improvement expenditure.

There will be a claw-back of the investment boost deduction (similar to tax depreciation presently) if the asset is sold for more than its tax value or original cost.  

New non-residential (i.e. commercial and industrial) buildings will qualify for the 20% deduction, even though they have a 0% depreciation rate for tax. Buildings (or other assets) where construction commenced prior to 22 May 2025 will qualify if the asset is available for use on or after that day. It appears that capital improvements (including seismic strengthening) undertaken to existing assets will also qualify for the investment boost. 

The Budget documents estimate the fiscal cost to be $1.67b per annum. Investment boost is expected to raise New Zealand’s GDP by 1 percent and wages by 1.5 percent over the next 20 years (with half of this coming in the first five years). 

We welcome the (surprise?) investment boost tax deduction announcement. Not quite accelerated depreciation, as it will only be available in the year of acquisition (or completion of construction/improvements), its purpose appears to be to increase investment in NZ’s overall stock of productive capital (given its limitation to “new to NZ�� assets). 

This measure seems to have been designed to walk the tight rope of delivering some targeted business tax relief, while limiting the fiscal impact. The accompanying fact sheet notes that this measure is considered to deliver “better bang for buck�� than a corporate tax rate cut (given the high fiscal cost of cutting company tax generally).

In particular, we welcome the availability of the investment boost deduction for the cost of commercial and industrial new builds, but also for major expenditure required, such as earthquake strengthening, to existing non-residential buildings. While not fully compensating for loss of tax deprecation post the 2023 election, it will mean that some of the additional cost should now be able to be claimed for tax if the capital project is completed on or after 22 May 2025.

Budget 2025 contains some significant changes to KiwiSaver, impacting both employees and their employers.

The minimum employee and employer KiwiSaver contribution rate will rise from 1 April 2026 to 3.5 percent and then to 4 percent from 1 April 2028. There will be the option to stay at 3 percent for periods of up to 12 months by application to Inland Revenue for employees unable to afford the higher contribution rate. 

From 1 July 2025:

• Government contributions (the so-called ‘member tax credit��) to KiwiSaver accounts will be reduced from a maximum of $512.43 to $260.72 per annum.
• Those earning more than $180,000 will not receive any government contribution.
• 16 to 17 year olds will be eligible to contribute to KiwiSaver and receive both employer and government contributions.

Impacts for employees and employers

The increase in contribution rates will need to be factored in by both employees and employers, including as part of future wage negotiations. The option to stay at a 3 percent rate appears to be at the option of the employee only (although if elected, a 3 percent matching employer contribution rate will also apply for the duration). 

The reduction in the member tax credit and limiting its availability for those with income of less than $180,000 is aimed at reducing the cost of the KiwiSaver scheme (estimated to save around $2.4 billion over four years). 

. While not in the Budget headlines, there are some other notable tax policy changes that the Government has announced that it will either proceed with or that it (or Inland Revenue) is consulting on. 

• The Digital Services Tax legislation has been shelved. This will have a Budget cost of $500 million (as this was how much was factored into the Government’s forecasts previously). 
• Changes to interest deductibility restrictions for non-residents debt-funding New Zealand investments.  
• Changes to the taxation of start-up company share schemes
• Changes to the Foreign Investment Fund rules for pre-migration investments held by certain new migrants
• Modernisation of the Fringe Benefit Tax rules to reduce compliance costs.