We’ve all been there – spotting a gadget that looks like it will change our life, only once it arrives, it doesn’t live up to the hype. Business incentives can feel a bit like that, too.

So is the government’s Investment Boost scheme the culinary equivalent of discarded spiral slicer in your bottom drawer, or the air fryer that fast-tracks you to home-chef mastery?

Let’s break down how it works. Investment Boost allows businesses who buy new assets (or import used assets from overseas) to claim an immediate deduction for 20% of the asset’s cost, plus the usual depreciation. It’s optional, and you might actually be better off not claiming it (you’ll see why in a minute).

What does Investment Boost mean in actual cash terms? Say you just bought a fully kitted-out Toyobaru Rangerlux ute for $100,000. Under Investment Boost, you can claim a $20,000 deduction, plus your normal depreciation.

However, this isn’t instant cash. That $20,000 deduction offsets your taxable income when you file your return. If your taxable income would’ve been $50,000, it’s now $30,000. For a company taxed at 28%, that means $5,600 less tax – at least, once you’ve filed your return.

So hooray, you’ve saved $5,600. Or have you?

Here’s the catch. By claiming Investment Boost, you’ve reduced the ute’s tax value by $20,000. You then apply normal depreciation to the remaining $80,000. Using the straight-line rate of 21%, your annual depreciation claim is $16,800.

But without Investment Boost, your annual claim would be $21,000. That extra depreciation would have reduced your tax bill by a further $1,176 per year.

See what’s happening? Under Investment Boost, you get a bigger deduction up front (and if it’s a commercial building, it’s the only depreciation you can claim). But you pay it back over the asset’s life, so it ultimately doesn’t save you anything. It’s what we call a timing difference in the tax world.

It can also lead to more taxable income later – if you sell an asset for more than its tax value, that’s taxable income. 

So, spiral slicer or air fryer? Depends on what you’re cooking. Get in touch to talk through the best strategy for you.

Alex Cull

Tax Partner, Greenhawk Chartered Accountants

0800 422 526 | [email protected] | greenhawk.co.nz