
Read time: 7-9 minutes
The 2025 New Zealand Government Budget, presented on 22 May, had a clear message: growth, investment, and productivity are key priorities. For small-medium businesses (SMEs) and property investors, this year’s announcements signal a mix of opportunities and challenges, especially around tax planning, asset investment, and KiwiSaver changes.
In this article, we break down the key budget announcements, what they mean in plain English, and how our clients should prepare.
1. Investment Boost: A Win for Business Growth
The standout policy for SMEs is the new Investment Boost initiative. If your business is considering upgrading equipment, investing in commercial property, or expanding your operations, this is worth noting.
What is the Investment Boost?
From 22 May 2025, businesses can claim an extra 20% tax deduction on the cost of new (not second-hand) capital assets in the year the asset is first used, on top of standard depreciation.
Want to learn more about depreciation?
What Qualifies For The Investment Boost?
- Machinery, vehicles, equipment
- New commercial and industrial buildings
- Improvements to existing depreciable assets (excluding residential buildings)
- Certain agricultural, mining and aquaculture assets
Note: This doesn’t apply to residential rental properties, intangible fixed assets (patents, copyrights, trademarks, software, brand names, customer lists, and goodwill) or second-hand equipment/vehicles already used in New Zealand.
Real World Examples
Example 1 – Transport Company
ABC Transport Ltd buys a new truck on 1 July 2025 for $400,000 (excl. GST):
- Immediate 20% deduction: $80,000
- Standard depreciation on the remaining $320,000 (e.g., 20% DV = $64,000)
- Total first-year deduction: $144,000
Example 2 – Manufacturing Business
Precision Engineering Ltd buys a CNC machine for $1.2M:
- Immediate 20% deduction: $240,000
- Remaining $960,000 depreciated (e.g., 25% DV = $240,000)
- Total first-year deduction: $480,000
What's The Catch?
While the Investment Boost is a fantastic opportunity to reduce tax in the year you buy new assets, there’s an important catch to be aware of.
If you sell the asset in future for more than its adjusted (book) value, the extra deduction you claimed can come back to bite as it’s treated as taxable income.
This is known as depreciation recovery, and it can:
- Increase your profit in the year you sell the asset
- Trigger unexpected tax if not planned for
- Impact cash flow in future years
Example:
If you buy equipment for $100,000 and claim a $20,000 Investment Boost + $4,000 in depreciation, your book value becomes $76,000.
If you sell the asset later for $90,000, the difference between the book value and the sale price (e.g. $90,000 – $76,000 = $14,000) is added to your taxable income.
Frequently Asked Investment Boost Questions
No, the Investment Boost is not compulsory. To take advantage of it, you’ll need to opt in by discussing it with your accountant. They can help you weigh up the pros and cons of claiming the additional deduction and, if it’s the right move for your business, will apply it when preparing your 2025–26 tax return.
If your accountant is familiar with your business, they may proactively identify eligible assets and include the Investment Boost when it would be in your best interest.
Anyone in business, regardless of trading structure, may be eligible to claim the Investment Boost, provided the asset meets the qualifying criteria (e.g. it is a New Zealand-new asset).
Currently, there is not enough clarity to confirm whether the exclusion for property investors with residential rentals applies when purchasing brand-new chattels such as ovens or heat pumps. These items are typically depreciated on an assets schedule, but further guidance is needed to determine eligibility in these cases.
At this stage, the Investment Boost appears to apply to commercial buildings and their associated assets/chattels (excluding land), meaning items like carpet, heat pumps, and other depreciable assets used in commercial properties qualify.
However, residential rental properties are explicitly excluded from the scheme. However, It’s unclear whether brand-new chattels used in residential rentals – such as heat pumps or oven – fall under the residential dwelling exclusion. These items are usually depreciated on the assets schedule, but more guidance is needed from Inland Revenue to determine if they can be claimed under the Investment Boost for residential rental properties.
We’ll continue to monitor updates and provide clarity as soon as further information is available.
Good news, there is no cap on the value or quantity of assets that businesses can apply the Investment Boost to.
You can only claim the Investment Boost on the business-use portion of an asset. Any private use of the asset is excluded from the claim.
Your accountant can help calculate the correct apportionment. This is particularly relevant for assets like vehicles, which are often used for both business and personal purposes. In these cases, it’s recommended to keep a logbook to track business versus personal use and support your claim accurately.
The asset may be eligible for the investment boost if it is only available for use after May 22.
Example 1: Jim paid the deposit for a brand-new ute on May 10, but it was only delivered to him on May 25 – he is eligible to claim the investment boost.
Example 2: ABC Limited purchased a piece of machinery in April 2025. It has been sitting in the factory and hasn’t yet been installed. The factory is waiting for a part from overseas to arrive so it can be installed. This machinery will be eligible because it was only available for use after 22 May.
2. KiwiSaver Changes: More Contributions, Less Government Support
KiwiSaver changes in this budget are significant, especially for employers and high-income earners.
What's Changing With KiwiSaver?
Employee and Employer KiwiSaver Contributions
- Currently 3% each, these will increase to 3.5% from 1 April 2026 and 4% from 1 April 2028.
- Employees can temporarily opt to stay at 3% if affordability is a concern.
Government KiwiSaver Contribution Slashed
- From 1 July 2025, the annual government top-up drops from $521.43 to $260.72.
- High earners (income over $180,000) will no longer be eligible for the government contribution.
16-and 17-Year-Olds Included in KiwiSaver
- From 1 July 2025, the Government will begin contributing to KiwiSaver accounts for 16- and 17-year-olds. Employer contribution matching for this age group will also be introduced from 1 April 2026.
What this means for you
- Employers: Plan for increased payroll costs from 2026. Budgeting ahead is key.
- High-income earners: Your KiwiSaver strategy may need adjusting, especially if you relied on the government match as part of your retirement planning.
- Businesses with young staff: Be ready to contribute to under-18 employees’ KiwiSaver accounts from April 2026.
3. Income Testing Tightened for Working for Families and Best Start
Families receiving support under Working for Families and Best Start Tax Credit (BSTC) will see changes from 1 April 2026.
What's Changing?
- The abatement threshold (income level where payments start to reduce) for tax credits increases to $44,900 (up from $42,700).
- The abatement rate (how quickly your payments go down once your income goes over the threshold) increases to 27.5% (up from 27%).
- To cover the cost of this extra support, the first year of BSTC will now be income-tested for children born on or after 1 April 2026. This aligns with the current state of the second and third years of the BSTC. Payments will start to diminish once a family income reaches $79,000 and cut off entirely when a family earns just over $97,000 a year.
What's in Discussion?
The Government is looking to make Working for Families payments more accurate, transparent, and easier for families to manage. A key focus is reducing the risk of unexpected debt, a common problem when families are required to estimate their income for the year, and that income changes unexpectedly.
The main proposal is to base entitlements on a shorter time period and use past income, rather than future estimates. This approach would improve the accuracy of payments and reduce the chance of overpayments and resulting debt. Additional proposals aim to simplify the rules, making it easier for families to understand what they’re entitled to and what their obligations are.
4. No Major Changes For Residential Property Investors
While residential property didn’t receive direct attention in this budget, the Investment Boost explicitly excludes residential dwellings, even if they’re used for short-term rentals. However, commercial and industrial property investors can benefit, particularly if new builds or improvements are planned.
5. Inland Revenue Gets More Funding For Compliance and Debt Management
For the second year in a row, Inland Revenue has received a significant funding boost aimed at ramping up compliance activity and debt recovery efforts.
What's Changing?
- In Budget 2024, NZ$26.5 million per year was allocated to support additional Inland Revenue compliance work, with that funding now extended through to 2028/29.
- Budget 2025 goes even further, adding another NZ$35 million per year for more audits, compliance reviews, and debt collection activities.
What this means for you
If you have a trust, operate a small business or have income not taxed at source, such as property investments or overseas income, this increased scrutiny means staying compliant is more important than ever.
Expect Inland Revenue to:
- Increase audit activity in areas with a history of under-reporting, e.g. cash-based businesses
- Follow up more aggressively on outstanding tax debt
- Take a closer look at deductions and GST claims, especially where patterns suggest personal use
It’s a timely reminder to ensure your bookkeeping and tax filing are up to date and accurate. If you’re unsure, speak with your accountant early. Proactive tax planning can help avoid costly mistakes or unwanted attention.
Why This Budget Matters for You
This “Growth Budget” offers a mixed bag. It rewards reinvestment, tightens entitlements, and subtly shifts the long-term burden of savings onto individuals and employers. For many of our clients, the key takeaway is this:
Now is the time to plan ahead, whether you’re thinking of upgrading business assets, hiring staff, or reviewing your KiwiSaver.
We’re optimistic that if this truly is a “Growth Budget” as the Government has positioned it, it will help rebuild consumer confidence. When confidence returns, spending tends to follow, and that’s critical. Increased consumer activity means more opportunities for businesses to move beyond survival mode and start focusing on sustainable growth, even in the face of ongoing global economic uncertainty.
How Kiwitax Can Help
At Kiwitax, we’re here to help small business owners and property investors across New Zealand make sense of these proposed changes, and take proactive steps to plan for what’s ahead.
If you’re an existing client, feel free to reach out to your dedicated accountant to discuss how the 2025 Budget may impact your situation and how you can leverage/accommodate the changes.
Not a Kiwitax client yet? We’d love to help.
Speak with our friendly advisors today for a personalised quote and to get started with our simple onboarding process.
Disclaimer
This article is intended to provide general information only and does not constitute personalised financial or tax advice. Please note that Budget 2025 measures are proposals at this stage and are subject to change until passed into law. We recommend seeking tailored advice from a qualified accountant or tax advisor before making any financial decisions based on these announcements.