The 2025 Budget focuses on fostering long-term economic stability and supporting the well-being of New Zealanders. It strikes a balance between targeted new investments and careful financial management, aiming to address current economic pressures while laying the groundwork for a stable future.  The Budget includes initiatives to boost productivity and increase retirement savings, reflecting a commitment to sustainable growth and fiscal responsibility.

A number of tax changes were announced in yesterday’s Budget.  Understanding the accounting and tax impact of these changes is vital for Business Owners to ensure they make well-informed decisions.  In this article we will provide clarity about the practical application of the Investment Boost, as well as upcoming KiwiSaver changes. We will highlight what changes you can expect to see from Inland Revenue and what the implementation of proposals surrounding Employee Share Schemes and FBT will mean for you.

What You Need To Know

Investment Boost

An encouraging growth-focused initiative aimed at increasing capital investment now and into the future is the headline Investment Boost. The Investment Boost allows a business to immediately deduct 20% of the cost of a new asset, on top of standard depreciation deductions available, resulting in a lower tax bill in the year of purchase. There is no limit on the number of assets the Investment Boost can be claimed on, nor on the total value of the deduction allowed.

For qualifying assets that are first used or available for use on or after 22 May 2025, you will be able to claim a deduction of 20% of the cost price in the financial year in which the purchase is made. Once a deduction for the Investment Boost has been claimed, depreciation deductions will then be calculated as if the cost price of the asset was reduced by 20%.

Most assets which are depreciable property for tax purposes, as well as certain assets that are allowed depreciation-like deductions but which are not depreciable property, fall under the Investment Boost scheme. We note that the Investment Boost applies to the purchase of new commercial and industrial buildings which have a depreciation value of 0%, but do not include residential buildings, land, trading stock, assets previously used in New Zealand, fixed life intangible assets and assets which are fully expensed under other rules. Construction projects commenced prior to 22 May 2025 may still be eligible for an Investment Boost deduction if the assets are updated or available for use for the first time on or after 22 May 2025 and meet specific other criteria.

KiwiSaver Changes

KiwiSaver changes proposed in the Budget will impact both the default rate of contributions for employees and employers, as well as the Government contribution. These changes aim to boost savings for first homes and retirement while making the scheme more financially sustainable.

The default contribution rate will gradually rise from 3% to 4% by 2028, starting with an increase to 3.5% from 1 April 2026, and increasing to 4% from 1 April 2028. From 1 February 2026, KiwiSaver Members will be able to apply for a temporary rate reduction from the higher default rates, and continue to contribute at 3% for a period of between 92 days and 12 months. If an employee opts for a temporary rate reduction, the employer would then be required to match the lower rate. There is no limit on the number of rate reductions a KiwiSaver member could elect for.

The Government will reduce its KiwiSaver contribution from 50 cents for every dollar a KiwiSaver member contributes each contribution year up to a maximum of $521.43 annually, to 25 cents for every dollar a member contributes up to a maximum of $260.72 annually from 1 July 2025. Government contributions for those employees earning more than $180,000 will stop from 1 July 2025. These changes however will not impact current eligibility to receive the Government contribution for the contribution year ending 30 June 2025. Additionally, 16 and 17 year olds will now be eligible to join KiwiSaver and receive Government and employer contributions.

Increased Focus on Tax Compliance

The Government is boosting its investment in chasing tax evaders, providing an additional $140 million of funding to Inland Revenue over the next 4 years to enhance tax compliance and debt collection.

Upcoming Tax Reforms

The Government has confirmed plans to proceed with previously consulted reforms, including:

• Modernisation of Fringe Benefit Tax (FBT): Changes will update FBT rules to make them less complex and more targeted to the benefit being received and the remuneration substituted, and reduce the administrative burden on businesses.
• Employee Share Schemes for Start-ups: The Government aims to assist start-up companies to attract talent by addressing a taxation timing issue for employee share schemes. By deferring the share scheme taxing date until a liquidity event occurs (such as the sale of shares or listing on an exchange), there should be a reduction in compliance costs and ensure employees have the cash proceeds available to finance their tax liability.

What This Means For Business Owners

Incentive to Make Capital Investments & Reduce Your Income Tax in the Year of Purchase

The Investment Boost offers an opportunity to reduce tax bills and reinvest in your business, supporting growth and job creation. If you are considering investing in new machinery, technology, vehicles or commercial property, reworking your budgets and cashflow forecasts to take into account the impact of the 20% Investment Boost deduction is important as this could have a material effect on your bottom line for tax purposes. You may need to recalculate your expected income tax payments for the current financial year, and consider the impact of higher deductions on any planned distributions.

The Investment Boost Deduction Could be Recoverable on Sale

If you claim an Investment Boost deduction you could end up deriving income similar to depreciation recovery income if the asset is disposed of and the consideration received is more than the asset’s adjusted tax value.

Increased KiwiSaver Employer Contributions

You will need to budget to pay higher KiwiSaver employer contributions for your staff as the default contribution rates increase if your Employment Agreements are not total remuneration packages. If your employ 16 and 17 year olds, you can also expect to pay KiwiSaver employer contributions for these employees where you may not have previously. The impact on your profit margins should not be underestimated.

Reduction in Government Contributions for High-Income Earners

If you earn more than $180,000 as a PAYE employee of your business, you will no longer receive a Government contribution to your KiwiSaver fund.

Increased Scrutiny from Inland Revenue

With increased funding provided to Inland Revenue, we expect to see increased scrutiny, more audits and less leniency with tax arrears.

Changes to FBT Calculations

Those business owners providing non-cash benefits to employees can expect changes in the way in which they are required to calculate FBT, with more clarity to come once these proposals come into effect.

For a full breakdown of Budget 2025 and other announcements, visit Budget 2025