Maximising depreciation and capital allowance benefits in your business

Maximising depreciation and capital allowance benefits in your business

Running a business involves more than just managing sales and expenses – it requires smart tax planning to enhance profitability. One often underutilised area is depreciation and capital allowances. These tax tools can significantly reduce your taxable income and improve cash flow if used correctly.

Below we explore how depreciation and capital allowances work and how your business can maximise their benefits.

What is depreciation?

Depreciation is a method of allocating the cost of a business asset over its useful life. In simple terms, it reflects the decrease in value of an asset over time due to wear and tear, age, or obsolescence.

For tax purposes, depreciation allows businesses to claim a portion of an asset’s cost as an expense each year, reducing taxable income.

Types of depreciation in New Zealand

Inland Revenue sets out specific depreciation rates for different types of assets. Businesses can typically use two methods:

1. Diminishing Value (DV) – a higher deduction in early years
2. Straight Line (SL) – equal deduction over the asset’s useful life

Supercharging depreciation with Investment Boost

Launched as part of Budget 2025 and effective from 22 May 2025, Investment Boost allows businesses to claim an immediate 20% tax deduction on the cost of qualifying new assets (or assets new to New Zealand) in addition to normal depreciation.

For example, purchasing a $100,000 piece of equipment with a 10% depreciation rate would mean:

• $20,000 upfront deduction under Investment Boost,
• and $8,000 depreciation on the remaining $80,000 in the first year, pro-rated based on the number of months the asset was owned/available for use prior to balance date,
• giving a total first-year deduction of $28,000 compared to only $10,000 under the old rules,  delivering significant immediate tax savings and improved cash flow from less tax payable.

What assets qualify for Investment Boost?

To qualify, assets must be first used or available for use on, or after 22 May 2025. Eligible assets include:

• new machinery, vehicles, tools and equipment,
• commercial and industrial buildings, even those with 0% depreciation under normal rules,
• improvements to depreciable property (e.g. seismic upgrades, ventilation),
• primary-sector land improvements, mineral or petroleum development, and more

Excluded are land, residential buildings, already used New Zealand assets, and fixed‑life intangible assets (e.g. patents).

How Investment Boost aligns with depreciation planning

Investment Boost effectively serves as an accelerated depreciation tool; it doesn’t increase the total deduction allowed over an asset’s life but brings more of it into the first year. That timing advantage lowers your tax payments and enhances liquidity when investing in capital assets.

Investment Boost does, however, require careful asset register tracking. You’ll need to separate out the 20% upfront Investment Boost deduction from ordinary depreciation on the remaining 80%, and both the accumulated depreciation and the Investment Boost deduction may be subject to claw-back if the asset is later sold for above its tax-book value.

Read more about understanding Investment Boost here.

Practical tips for maximising depreciation benefits

1. Choose the right depreciation method – consider both straight-line and diminishing value options to see which offers the best short-term benefit. For rapidly depreciating assets, DV may offer better cash flow.
2. Review asset registers regularly – remove obsolete or scrapped assets. You may be able to claim a loss on disposal, further reducing tax payable.
3. Track low-value asset purchases separately – immediately write-off eligible low-cost items rather than capitalising and depreciating them.

What capital allowances can you claim in New Zealand?

Capital allowances refer to the tax deductions available for capital expenditures – investments in assets like machinery, vehicles, IT equipment, or buildings (in limited cases).

Businesses can fully expense low-value assets (assets costing $1,000 excl GST or less) at the time of purchase. This means instead of claiming depreciation deductions over multiple years, you can claim a deduction for 100% of the cost upfront.

Depreciation and capital allowances have always been powerful tools in reducing business tax liabilities. The addition of Investment Boost adds a strategic layer, enabling businesses to front‑load deductions and retain more cash when investing in productive assets. With the flexibility offered by Investment Boost, and careful timing and record‑keeping, the right mix of accelerated deductions and conventional depreciation can translate into meaningful financial advantage for your business.

While the basics of depreciation and capital allowances are relatively straightforward, applying them correctly across complex asset portfolios can be challenging. Tax rules may change, and certain asset classifications can be ambiguous. Our team of qualified chartered accountants and tax advisors at Nexia New Zealand will ensure you’re not leaving money on the table.

Talk to our experts

Reach out to your trusted Nexia New Zealand advisor to ensure you are maximising your benefits.

About Nexia New Zealand

Nexia New Zealand is one of New Zealand’s leading full-service chartered accounting and business advisory consultancy firms, offering the full range of chartered accounting, business advisory, corporate advisory, tax, audit, insolvency, liquidation and receivership services.

Nexia New Zealand has four offices throughout New Zealand: Victoria Street in Christchurch, Albany on Auckland’s North Shore, Newmarket in the Auckland CBD and Hastings in Hawke’s Bay.