Depreciation: A Core Advantage in Commercial Property
Depreciation has always been a key advantage of commercial property investment but New Zealand’s new Investment Boost scheme is certainly a game-changer for investors.
In a surprise move in last month’s budget, the Government announced an immediate tax write-off for 20% of the value of new assets (in addition to normal depreciation), purchased after 22 May 2025. This also applies to the purchase of new build commercial and industrial buildings. Suddenly, investors have even more reason to choose commercial property over other investment options.
Why Depreciation Matters
Depreciation has always allowed commercial landlords to write down the value of chattels (non-structural assets like lighting, carpets, blinds, and mechanical systems) over time. This offsets the rental income earned from a property, reducing your tax obligations and improving your overall returns.
When Classic Collectives purchases a property, we organise a depreciation valuation which determines the value of chattels over their lifespan. We ideally want the value of those chattels to be as high as possible to maximise the amount of depreciation we can claim.
As an example, we own one commercial building where we claimed $400,000 in depreciation in the first year. The rent roll on that building was $1.2 million, meaning that $400,000 of that income was not taxed. That’s a very attractive advantage for our investors.
Compare that to a term deposit where you pay tax on the entire amount of income earned, with no way to minimise it. On paper both investments might appear to generate a similar annual return. But the ability to claim depreciation means commercial property investment is highly likely to put more money in your pocket after tax.
The Investment Boost Advantage
Under the new Investment Boost scheme, landlords can now supercharge these benefits. For example, if we purchase a brand new commercial building and the structure and fit out is worth $10 million, we can immediately deduct $2 million in the first year AND continue to depreciate the chattels on top of that. Note that Investment Boost does not apply to land (other than certain depreciable land improvements).
For commercial buildings, it will be critical to determine what constitutes a ‘new’ building and the time at which the deduction is triggered. Importantly, the building must be ‘new depreciable property’, so the Investment Boost won’t apply to ‘develop and sell’ projects.
What does this mean for Classic Collectives’ Investors?
We will be working closely with our advisors to take advantage of the Investment Boost scheme wherever possible.
While we’ll continue to assess all potential commercial and industrial investment opportunities (existing buildings and new), we’ll certainly be keeping a closer eye out for new buildings to help our investors reduce their taxable income as much as possible.
Leveraging the Investment Boost can enhance first-year cash flow, maximise deductions, and set the stage for stronger long-term profitability.
As always, if you have any questions or would like to know more, feel free to get in touch.
- Email: Daniel.watkins@classic-group.co.nz
- Phone: 027 577 1755
*We note this article is general in nature and should not be used as a substitute for professional tax advice.
