13 Aug 2025

The New Zealand Government’s 2025 Budget introduced a significant incentive to spur business investment and long-term growth through the Investment Boost tax deduction. While headlines have focused on tech startups and manufacturers, this measure has powerful implications for commercial property investment – especially when investing in new buildings or value-add projects with significant capital expenditure.

In this article, PMG CFO Matt Baker breaks down what the Investment Boost is, how it works, and what it means for PMG investors.


What is Investment Boost?

The Investment Boost is a new 20% tax deduction on qualifying capital expenditure for businesses, in addition to regular depreciation. To qualify, the capital expenditure must be for new assets that are available for use on or after 22 May 2025, and depreciable for tax purposes.

In simple terms: if a business (or fund) invests $10 million into qualifying assets (like the fit out of a building), they can immediately deduct $2 million from their taxable income in that year. The remaining capital expenditure is still depreciable under the existing rules. For commercial property, the Investment Boost will apply to the purchase or construction of new commercial buildings (that qualify as depreciable property but currently have a 0% depreciation rate). There are specific exclusions around claiming Investment Boost for residential property and second-hand assets sourced from New Zealand.

This is designed to encourage long-term investment by improving after-tax returns and freeing up capital in the early years of a project.


Why it matters for commercial property investors

For commercial property fund investors, this initiative has the potential to:

  • Improve net returns in the early years of a new development or asset upgrade
  • Offset lower net returns from development/capital improvement projects during initial lease-up periods
  • Make new development/capital improvement opportunities more attractive and feasible


Investment Boost at a glance

So what does this mean for investors? More money in your pocket at the end of the day.

The hypothetical investment scenarios below outline how the Investment Boost might impact investors’ net return after tax in different situations.

All scenarios assume an effective tax rate of 28% and that all assets are held long term in a PIE fund structure, distributing the full return to investors. To simplify the scenarios, we have assumed the gross return (on cost) is generated from the underlying property/fund net of costs and is fully taxable.

Scenario

Without Investment Boost

With Investment Boost

New Build project

$15m cost ($8m building cost, $2m fit out, $5m land value)

  • Only regular depreciation
  • Gross return – 6%
  • Net return – 4.69% in year 1 (after tax deductions at 28%)
  • $2m immediate tax deduction (20% on building and fit out) + regular depreciation
  • Gross return – 6%
  • Net return – 6% in year 1 (after tax deductions at 28%)

(+1.31% vs without Investment Boost)

Tax benefits from the Investment Boost deductions would continue in years 2 & 3

Value add and fit-out project

$15m overall closing cost for the asset with a project spending $1m on fit out upgrade plus $1m structural upgrade (considered part of the building)

Project completed after 9 months.

  • Only regular depreciation
  • Gross return – 6%
  • Net return – 4.37% in year 1 (after tax deductions at 28%)
  • $0.4m immediate tax deduction (20% on upgrades) and regular depreciation
  • Gross return – 6%
  • Net return – 5.14% in year 1 (after tax deductions at 28%)

(+0.77% vs without Investment Boost)

Portfolio-Wide Capex Spend

$300m portfolio with a depreciable fit-out spend of $8m and structural (building) fit out spend of $4m.

  • Only regular depreciation
  • Gross return – 6%
  • Net return – 4.52% in year 1 (after tax deductions at 28%)
  • $2.4m immediate tax deduction (20% on all fit out spend) + regular depreciation
  • Gross return – 6%
  • Net return – 4.73% in year 1 (after tax deductions at 28%)

(+0.21% vs without Investment Boost)


Want to learn more?

More information on the type of expenditure that qualifies and how the Investment Boost works is included on the IRD website. The IRD is also expected to release more detailed guidance shortly.

PMG is already incorporating the Investment Boost into current investment projects and factoring it into the assessment of upcoming investment opportunities, with oversight from independent advisors. As with any tax policy, and particularly in NZ, although there is no end date on the policy, there is also the risk that it is removed before the completion of a project, and the IRD guidance may change over time.

This article is part of our Investor Education Series, designed to build understanding and confidence across your investment journey with PMG. Stay tuned for more topics soon.



Disclaimer: The information in this article is of a general nature and was current as at June 2025. It is not intended to be regulated financial advice for the purpose of the Financial Markets Conduct Act 2013 and does not take your individual circumstances and financial situation into account. As with any investment, commercial property carries risks, including the risk of loss of capital. Past performance is not a guarantee of future results. PMG does not provide financial advice about whether an investment in one of its funds is right for you. Please seek advice from a licensed financial advice provider before making any investment decisions. PMG’s secondary market matching service operates on a queue system, and there is a fee. The time it takes to move shares or units can vary depending on the number of sellers in the queue and the level of demand.

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