Executive summary

On 22 May 2025, the New Zealand Government delivered the 2025 Budget, which includes several key tax announcements. Some of the reforms have already been enacted with the passage of the Taxation (Budget Measures) (No 2.) Act 2025. The remaining reforms are expected to be introduced into draft legislation later this year and enacted before 31 March 2026. In some cases, application dates for the reforms could be made retrospective.

In brief, in Budget 2025 the Government has:

• Introduced an "Investment Boost" to allow accelerated depreciation on new assets: An optional additional 20% upfront deduction is provided for all new depreciable assets, including commercial buildings. The change has been enacted and applies for all new assets acquired from 22 May 2025.
• Provided additional funding for Inland Revenue compliance and debt management activity: Budget 2025 forecasts show that Inland Revenue is expected to deliver an 8:1 return on investment from audit, compliance review and debt collection activities.
• Launched a consultation on the thin-capitalization settings: A new consultation aims to boost foreign direct investment in New Zealand, particularly for infrastructure projects. The consultation is currently open, with submissions due by 19 June 2025; the changes are expected to be introduced in legislation later this year.
• Committed to progress reforms to defer the taxation on certain employee-share schemes for the start-up sector: Following an earlier consultation, the Government has committed to progress reforms to allow an optional deferral for certain employee-share schemes to help the start-up sector attract and retain talent. The changes are expected to be introduced in legislation later this year.
• Committed to progress reforms from the Fringe Benefit Tax review: Following an earlier consultation, the Government has committed to progress reforms to address concerns with existing Fringe Benefit Tax (FBT) settings.
• Introduced a package of KiwiSaver reforms: Changes will increase the minimum employee and employer contributions into the private-pension savings scheme; the Government subsidy has also been reduced for most savers.

Detailed discussion

Investment Boost allows for optional accelerated depreciation deductions

The new "Investment Boost" reform allows an optional accelerated depreciation deduction of 20% of the tax book value of new assets in the year of acquisition. Assets must be brand new, new in use or new to New Zealand.

To be eligible, assets must be depreciable. The reform specifically includes commercial and industrial buildings (which are otherwise non-depreciable) as well as agricultural and forestry land improvements (e.g., fencing, listed horticultural plants), and petroleum and mining development expenditures (but not rights, permits or privileges). Residential buildings and fixed-life intangible property are excluded, however.

The 20% upfront deduction reduces the cost base, but ordinary depreciation is claimable for the remaining 80% value, including in the year of acquisition. The claim is optional, on an asset-by-asset basis.

Investment Boost expenditure remains eligible for New Zealand's research and development tax credit regime, which could give businesses an additional cash-flow boost.

Additional compliance and debt management funding for Inland Revenue

Inland Revenue has received a boost in compliance and debt management funding for the second year in a row. In Budget 2024, an additional US$15.94m (NZ$26.5m) per annum was allocated for additional compliance work, and that funding stream has now been extended out to 2028/9. An additional US$21m (NZ$35m) per annum has been committed in Budget 2025, to further invest in compliance review, audit and debt-collection work.

In total, the Budget documents show that the Government is hoping that an additional US$902m (NZ$1.5b) of revenue will be collected or recovered over time as a result of this new funding.

Reforms committed to but not yet legislated

The 2025 Budget confirms the Government's intention to progress reforms that have either been, or currently are, subject to public consultation.

The three focus areas include:

1. Interest deductibility due to thin-capitalization settings: Reforms are being considered that could allow additional interest deductions for qualifying projects. Consultation is currently open, with submissions due by 19 June 2025. Officials outline two options for reform including:
1. Rule targeting infrastructure projects: This rule would allow interest on third-party limited-recourse debt for "eligible infrastructure projects" to be fully deductible (what is meant by "infrastructure" remains to be determined).
2. More general rule focusing on arrangement type: This rule, focusing on the type of arrangement (e.g., third-party debt), is not necessarily limited to infrastructure projects. This new rule would apply as an alternative test to existing thin-capitalization thresholds.
2. Taxation of employee-share schemes in the startup sector: Following an earlier consultation, the Government has committed to progress reforms to allow an optional tax deferral for certain employee share schemes.
3. Fringe Benefit Tax settings, including for the taxation of motor vehicles: Following an earlier consultation, the Government has committed to progress reforms to address concerns with existing Fringe Benefit Tax (FBT) settings and to refocus the FBT system on taxing benefits that are provided as remuneration to employees.

KiwiSaver reforms set to increase contributions

KiwiSaver is an optional private pension savings scheme, which is subject to certain tax concessions. Budget 2025 makes several KiwiSaver changes that will have an impact on New Zealand employees and employers, including:

• Increasing the minimum contribution for both employees and employers: Minimum contribution rates would increase steadily from 3% today, to 3.5% beginning 1 April 2026 and eventually to 4% by 1 April 2028.
• Reducing and means testing the subsidy: The KiwiSaver subsidy will exclude workers with income exceeding US$108,400 per annum (NZ$180,000), with effect from 1 July 2025, and will cut in half the annual maximum for everyone else to a new annual maximum of US$157 (NZ$260.72).
• Extending the reforms to 16-17-year-old savers

Implications

Employers with New Zealand staff members will need to ensure these changes are accurately reflected in future payroll processes.