Are you making the most of the Investment Boost tax incentive?

One of the problems with big awesome announcements that will benefit business owners, is that the initial excitement about them wanes and we forget about it. The announcement last year about the Holidays Act changes (it’s not even drafted yet!) is an example, as is the Investment Boost tax incentive.

If you're looking to invest in new equipment, machinery, or commercial buildings, the government's Investment Boost tax incentive could put significant money back in your pocket. Introduced in Budget 2025, this initiative allows businesses to claim an ‘immediate’ 20% tax deduction on eligible new assets, with no cap on investment value.

But did you know that you don’t actually have to spend big to qualify for this tax incentive?

What is the investment boost?

The Investment Boost was the centerpiece of Budget 2025. When you purchase qualifying new assets for your business, you can claim an instant 20% tax deduction on top of your regular depreciation deductions.

For example, if you invest $100,000 in new machinery, you can immediately claim a $20,000 tax deduction through Investment Boost, plus your normal depreciation deductions.

What does ‘tax deduction’ mean?

Sorry, you’re not reducing your tax bill by 20% of the asset’s value. What this means is that when you are preparing your annual accounts later this year, you will:

• calculate the normal depreciation of the asset and add that into the ‘depreciation expense’ line on your profit and loss statement, AND

• calculate 20% of the purchase price and add that to an expense line on your profit and loss statement.

Hot tip: always keep a record of your depreciation calculations so that each year, you remember how you did it last year (I learned that one the hard way!).

So, if you spend $100,000 on 1 April 2026, and you’re depreciating at 10%, then the total depreciation cost at 31 March 2027 would be 10%+20% = $30,000.  If your company tax rate is 28%, then reducing your profit by $30,000 also reduces your tax bill by $8,400.

Who can claim?

The Investment Boost is available to all businesses in New Zealand, regardless of size or industry. There's no cap on the investment value, meaning whether you're investing $1,001 or $10 million, you can claim the 20% deduction.

What assets qualify?

To be eligible for Investment Boost, assets must meet three key criteria:

1. New or new to New Zealand - This includes brand new items bought in NZ or overseas, or second-hand assets imported from overseas that haven't been used in New Zealand before

2. First available for use on or after 22 May 2025 - The asset must become available for business use from this date onwards (meaning it arrived in the country after 22 May if it’s imported).

3. Depreciable for tax purposes - The asset must qualify for depreciation under normal tax rules.

What does ‘qualify for depreciation under normal tax rules’ mean?

In simple terms, depreciable assets are

• Capital assets that lose value over time due to wear and tear or obsolescence

• Used to earn income for your business

• Assets that cost over $1,000.

Yes, that’s right, so if you spend just $1,099 on a new laptop, then that purchase qualifies for the Investment Boost tax deduction.

Eligible assets include:

Commercial and industrial assets

New commercial and industrial buildings (even though they depreciate at 0%)

• Machinery and manufacturing equipment

• Tools and equipment

• Vehicles

• Technology, computers, and IT infrastructure

• Office furniture and equipment

Primary sector investments

• Farm fencing and farmland improvements

• Planting of listed horticultural plants

• Aquacultural business improvements

• Forestry land improvements

• Assets from petroleum development and mineral mining (excluding rights, permits, or privileges)

Property improvements

• Capital improvements to existing commercial buildings

• Extensions and alterations that increase capital value

• Seismic strengthening of commercial properties

Mixed use assets

You can claim Investment Boost on the business-use portion of assets that have both business and private use. However, you cannot claim for the portion used for private purposes.

Imported second-hand assets

Second-hand assets imported from overseas are eligible, as long as they haven't been previously used in New Zealand. This opens up opportunities to purchase quality used equipment from international suppliers while still qualifying for the incentive.

What assets don't qualify?

Understanding what's excluded is just as important as knowing what qualifies:

Excluded assets

Second-hand assets sourced from within New Zealand (trading equipment between NZ businesses doesn't increase the country's capital stock)

• Residential rental buildings and residential land

• Most fixed-life intangible assets, such as patents

• Rights, permits, or privileges

• Low-value assets claimed as immediate deductions (currently under $1,000)

• Any portion of an asset used for private, non-business purposes

The exclusion of second-hand New Zealand assets is deliberate - the government wants to encourage new capital investment rather than simply transferring existing assets between businesses.

How to claim the Investment Boost

The claiming process is straightforward and doesn't require prior notification to IRD:

1. Purchase your eligible new asset

2. Calculate 20% of the asset's cost

3. Include this Investment Boost amount as depreciation in your tax return

4. Report it in the tax depreciation box on your Financial Statements Summary (IR10)

Important: If you claim Investment Boost on an asset, you must depreciate that asset. You cannot elect to make it non-depreciable.

What evidence do you need?

You'll need to maintain documentation proving:

• When you purchased or acquired the asset

• When it first became available for use in New Zealand

• Your expenditure on the asset

This evidence might include:

• Invoices, receipts, and proof of payment

• Proof of ownership

• Contracts and compliance certificates

• For imported goods: bills of lading, customs clearance, freight invoices

• Email correspondence, texts, or letters from the time of purchase

Understanding "available for use"

An asset is considered available for use when it's physically and legally capable of being used, even if you don't start using it immediately. For construction projects or improvements, this typically means when the work is complete to an identifiable stage that increases the capital value of the asset.

Minor or incidental use doesn't disqualify an asset. For example, a single demonstration of equipment while it's held for sale isn't considered "use" that would prevent the asset from qualifying.

Making the most of this opportunity

The Investment Boost represents a significant opportunity for New Zealand businesses to accelerate their growth and modernization plans. With no cap on investment value and immediate tax relief available, now is an excellent time to consider:

• Upgrading aging equipment or machinery

• Investing in new technology to improve efficiency

• Expanding your commercial premises

• Purchasing vehicles for your fleet

• Making improvements to existing commercial properties

For businesses that have been delaying capital investments, the Investment Boost effectively reduces your purchase cost by 20% through immediate tax savings, making those investments more affordable and attractive.

Next steps

If you're considering making a significant business investment, consult with your accountant or tax advisor to ensure you maximise your Investment Boost claim and understand how it fits into your broader financial strategy. They can help you navigate the specific requirements and ensure you maintain the proper documentation for your claims.

For more detailed information and examples, visit the IRD website at www.ird.govt.nz and search for "Investment Boost."

Need a loan for that investment?

We have relationships with many types of lenders, that can help buy your asset. Finding lenders to fund against second hand or imported equipment can be tricky. But they’re out there and we know where to find them!

Contact us to discuss your needs.

This article provides general information about the Investment Boost tax incentive. For advice specific to your business situation, please consult with a qualified tax professional or accountant.

Registered mortgage vs caveat: What’s the difference for NZ business loans?

This is not a substitute for legal advice. If you are thinking about a secured loan, we always recommend getting independent advice.

If you’ve ever tried to get a secured business loan in New Zealand, you’ll know it’s not always easy to get money through the banks, no matter how loyal you are and how many accounts you have with them. Banks usually want detailed financial statements, plenty of history, and lots of time to process an application. They’re very risk-averse, which is why they are the cheapest source of business loans. But that risk averseness can be a real barrier when you need cash quickly to grab a business opportunity or manage cashflow. And if you’ve got IRD arrears, your chances of securing funding, even with plenty of equity in your home, are extremely low (see my other blog post about that here.

If you’re not afraid of putting your property up as security, this is where non-bank and second-tier finance companies come in. They’re generally faster and more flexible and there are plenty out there that are happy to lend against your house. And that’s where it’s important to understand the difference between a registered mortgage and a caveat. Both are used to secure business lending, but they work quite differently and have very different implications if something goes wrong.

what is a secured business loan?

A secured business loan is a type of finance where the borrower (you) offers an asset — usually property — as collateral. If the business can’t repay the loan, the lender can use that asset to recover the money owed.

Secured loans often come with lower interest rates and larger loan amounts, because they reduce the lender’s risk. The trade-off is that the your property is on the line if you default.

what is a registered mortgage?

A registered mortgage is the most formal type of property security. It’s registered on the property title with Land Information New Zealand (LINZ), showing that the lender has a legal interest in the property.

From the lender’s point of view, this provides strong protection. You can’t sell, refinance, or transfer ownership of the property without their consent. And if the loan isn’t repaid, the lender has the right to take possession and sell the property to recover the debt.

Because of these strong rights, registered mortgages are typically used for larger or longer-term secured business loans. They require more documentation and due diligence, but they also provide lenders with greater confidence — which can make it easier to borrow bigger amounts.

what is a caveat?

A caveat is a different kind of security notice. Instead of giving the lender full rights to your property, a caveat acts as a warning on the title that someone else (the caveator) has an interest in your property.

When a caveat is lodged, it effectively blocks the property owner from selling or further mortgaging the property until the caveat is lifted or resolved. This makes it a popular option for short-term business loans where speed is crucial and setting up a full mortgage would take too long.

However, a caveat doesn’t allow the lender to automatically sell the property if you default. To get their money back, they would need to apply to the court — a process that’s slower and less certain than enforcing a mortgage. If things are looking dicey, they may contact you about registering a mortgage before things get really bad, which is an indicator to you that you need to act quickly to get your loan repayments back on track, or refinance your loan.

registered mortgage v caveat, the main differences

WHAT HAPPENS IF YOU DEFAULT ON A SECURED BUSINESS LOAN?

If your loan is secured by a registered mortgage, the lender can move fairly quickly to enforce it. They’ll issue a demand for repayment, and if that’s not met, they can proceed with a mortgagee sale. The property is sold, the lender gets their money back, and any surplus funds go to you.

If the loan is secured by a caveat, it’s a different story. The lender can stop you from selling or refinancing the property, but they can’t simply sell it themselves. They’d need to apply to the court for a charging order or other enforcement method. This makes caveats less powerful but also less intrusive than mortgages.

WHICH OPTION IS RIGHT FOR YOUR BUSINESS?

We can’t tell you what is right for your business, and our advice if you are thinking about secured borrowing is to get advice first. But if you’re exploring property-backed business finance, the right type of security depends on your situation, and may ultimately be dictated to you by your lender:

• Registered mortgages are usually for long-term borrowing or larger loan amounts where the lender needs stronger protection.

• Caveats work well for smaller, short-term, or bridging loans where speed and flexibility are the priority.

FINAL THOUGHTS

Understanding the difference between a registered mortgage and a caveat is crucial before you agree to any secured business loan in New Zealand. Both can be effective tools for accessing funding, but they carry very different rights and obligations for you and your lender.

Before signing anything, always get independent legal and financial advice. Knowing exactly what you’re agreeing to will protect both your property and your business down the line.

And if you need a secured business loan and the bank has said no, we have a range of lenders that will be happy to look at your application. Contact us to find out more.

Need a business loan but got IRD debt?

Banks in Aotearoa New Zealand are increasingly unwilling to lend to businesses that have debt with Inland Revenue (IRD), even when a payment arrangement is in place.

IRD debt creates heightened risk that banks won’t tolerate. This is due to current climate of aggressive tax debt enforcement. As at 31 March 2025, NZ is $9.3billion behind in it’s payments to IRD. There are record levels of liquidations – 134 in the first quarter of this year, up 68% on the previous year. There is significant government funding aimed directly at tax compliance and debt recovery. For more information, see here.

Why banks avoid lending to businesses with IRD debt

It’s a big red flag for lenders: IRD debt is viewed as an immediate red flag for most lenders in New Zealand. Many banks and even some alternative lenders will decline applications from businesses with unresolved IRD arrears or will require that the IRD debt is repaid before they will lend, even if a payment plan is in place. Here’s why –

• Risk perception - arrears with IRD are seen as an indicator of financial stress or poor management, signaling to banks that a business may struggle to meet further debt obligations. This increases the perceived risk, especially for unsecured business loans.

• Liquidation threat - As IRD becomes more assertive in recovering debts, banks fear that a business with tax arrears is vulnerable to the IRD swooping in and appointing the Official Assignee as a liquidator. All of a sudden, there’s no revenue to pay your bank debt, and any money the OA recovers will go to IRD, not the bank.

• They think you’re managing your business poorly - Not paying tax could indicate to a bank that you are failing to manage your business prudently. If your tax is behind, they may feel that your financial accounts are unreliable too. Remember, banks can get a good gauge from your bank activity how disciplined you are with your business’s money.

How do you stay on top of your taxes and keep the Official Assignee from visiting?

First, if you have debt, contact IRD. Seriously. They love it when you contact them and offer them a payment arrangement. This takes the heat off you, and onto someone else who is burying their head in the sand.

Second, put in place some procedures that help you to stay on top of things, such as:

• Lining up your tax arrears repayment with when your bank account has the most money in it

• Arrange an overdraft as a safety net, to avoid any bounced payments to IRD or other lenders – because reversed payments prevent you from getting future borrowing, even with second-tier finance companies

• Sweep GST into a savings account when you receive payments or have banked cash sales

• Keep on top of PAYE by paying it when you submit your PAYE return

• Put money aside for provisional and income tax whenever you can

If you have tax arrears and want to get business funding, here are a few key points:

• You need to be transparent with your lender – show them your payment arrangement documentation and be open about any payments you’ve missed

• Most lenders will treat your IRD debt like any other loan, when calculating how much they will lend you.

• As tax debt is a risk factor, be prepared to pay a higher interest rate; which on top of other factors like poor credit can mean paying quite high rates.

tax debt: the bottom line

It’s not impossible to get business loans and funding when you have IRD arrears … just don’t expect your bank to be on board, even if you have existing business with them such as a home loan (with good equity). If you have arrears, get a payment arrangement in place and show good discipline in your bank accounts before applying for finance. And contact us to talk about your finance needs – every funder has different products and application criteria so we can easily find a funder that will suit you and your business.

What the heck does 'capitalising interest' on secured loans mean?

So, you're looking into secured business loans secured by property and hear the term "capitalising interest." Sounds a bit scary, right? Don't let the jargon scare you!

In simple terms, it means you're not making any loan repayments for a set period (usually the first three to six months), but the interest and any applicable fees for that time don't just disappear. Think of it like a tab at a restaurant: you don't pay for your drinks as you go, but at the end of the night, everything is added up, and you pay the total. With loan capitalisation, your tab is closed after six months and instead of paying it then and there, you then begin making repayments on that bigger balance.

How does interest capitalisation actually work?

Imagine you take out a business loan with a first or second mortgage on your property. The agreement includes a six-month interest capitalisation period. For those first six months, you don't make any payments. Sounds great, right?

But here's the catch: at the end of that six months, the interest that would have accrued is calculated and added to your original loan amount along with any of the up front fees. So, your new, bigger loan balance is what you start paying interest on, and start making repayments on. Or you have the option of refinancing the loan elsewhere and paying off the new loan balance in full (original amount borrowed, fees and six months’ worth of interest).

Why would a business want to capitalise a loan?

Now, you might be thinking, "Why would anyone want a bigger loan?" Well, there are actually some pretty valid reasons:

• Cash flow cushion: This is the big one. For new businesses, those first few months can be tight. Capitalising interest frees up crucial cash to invest in getting off the ground – think marketing, inventory, and those essential first hires. It's like having a financial safety net when you need it most.

• Navigating the ups and downs: Businesses with seasonal income, like tourism operators, might borrow money during the low season to carry out repairs and maintenance, and pay staff holidays. Capitalising interest helps them manage their cash flow when revenue is low and then start repaying when the busy season kicks in and the money's rolling in again.

• Big projects, big spends: If you're investing in a major expansion, like building a new factory or buying a massive piece of equipment, capitalising interest can give you breathing room. You can focus your funds on the project itself and start repayments once the new asset is up and running and generating income.

• Weathering a storm: Sometimes, unexpected economic hiccups happen. Capitalising interest can offer a temporary reprieve, allowing your business to ride out a short-term downturn without the added pressure of loan payments. It can be a lifeline to keep things afloat until the economy bounces back.

• Strategic moves: Businesses waiting for a big payout, like the sale of an asset or payment on a large contract, might opt for this. It lets them cover immediate costs without having to scramble for funds, knowing a significant cash injection is on its way.

• Growth mode: If you're anticipating a surge in business, you might capitalise interest to invest heavily now – hiring more staff, boosting marketing, increasing stock – to take full advantage of the upcoming boom. You're betting that future profits will easily cover the slightly larger loan.

• Smooth transitions: Businesses undergoing big changes, like shifting their business model or expanding into new markets, can face temporary revenue dips. Capitalising interest provides a financial buffer to navigate these transitions without immediate repayment pressure.

• Debt makeovers: When consolidating multiple debts, having a period of capitalised interest can simplify the initial stages of your new financial structure, giving you time to get everything sorted before repayments begin.

• Supply chain survival: Facing a temporary disruption in your supply chain can seriously impact sales. Capitalising interest offers a bit of breathing room to find alternative solutions and keep your business going until things get back on track.

But it's not all sunshine and rainbows: the downsides of interest capitalisation

While capitalising interest on your business loan can be helpful, it's not a magic bullet. Here are the potential pitfalls:

• Bigger loan, bigger repayments (eventually): This is the most obvious one. By adding the interest to your principal, you end up borrowing more money overall. This means your future repayments will likely be higher, and you'll pay more interest over the life of the loan.

• Extending the debt: Capitalising interest essentially pushes your repayment start date further down the line. This means you'll be in debt for a longer period.

• The interest snowball: Because the capitalised interest starts accruing interest itself, your business’s debt can grow faster than it would with regular payments. It's like interest on interest – a snowball effect that can make the total cost of the loan significantly higher.

• Not a long-term fix: This is crucial. Capitalising interest is a short-term solution for specific situations. If your underlying business isn't healthy or your cash flow issues are chronic, simply delaying payments won't solve the bigger problem. It can actually make things worse in the long run.

• Approval isn't guaranteed: Most lenders will assess your situation carefully before agreeing to capitalise interest. They need to be confident that your business has a solid plan to improve its cash flow and handle the larger future repayments.

The bottom line

Capitalising interest on a business loan can be a valuable tool in specific circumstances, providing crucial cash flow relief when you need it most. However, it's essential to understand the long-term implications. You'll end up paying more interest overall, and it's not a substitute for a sound business strategy. So, weigh the pros and cons carefully and seek independent advice to see if it's the right move for your business's unique situation.

If you’ve got equity in your property and the bank won’t release it, talk to us about a second mortgage with capitalised interest.