New Zealand’s tax environment for commercial property investors is shifting again, bringing a combination of cost pressures and new opportunities. On the one hand, the removal of depreciation on commercial and industrial buildings will reduce after-tax cashflow for many investors. On the other, the reintroduction of full interest deductibility and the introduction of the 20% Investment Boost for eligible assets create potential pathways to offset those losses.
These changes come at a time of tighter financing conditions, stabilising yields, and a more disciplined investor market across New Zealand’s commercial sectors. As a result, investors are reassessing their operating structures, cashflow strategies, and how they approach future acquisitions.
This guide breaks down the key commercial property tax changes, what they mean in real terms, and practical strategies investors can use to optimise their position in 2026 and beyond.
From the 2025–26 income year, depreciation deductions on commercial and industrial buildings revert to 0%.
This removes a valuable tax shield that many investors have relied on for a decade. While fit-out and plant remain depreciable, the building structure itself no longer contributes to reducing taxable income.
What this means in practice
Annual taxable income increases.
After-tax cashflow reduces.
Long-hold owners face cumulative losses in depreciation benefits.
Acquirers must be more strategic in negotiation and purchase price allocations.
From the 2025–26 year, interest costs become fully deductible again for commercial property investors, aligning the tax treatment with long-held expectations in this sector.
Practical outcomes
Leveraged investors see improved cashflow.
Debt-funded repositioning projects become more tax-efficient.
Low equity-borrowers regain a valuable offset to rising operating costs.
With interest rates still elevated (though stabilising), this deductibility materially softens the after-tax cost of borrowing.
A new 20% deduction is available for qualifying capital expenditure on assets first used on or after 22 May 2025. Importantly:
The deduction applies upfront, providing a significant first-year tax saving.
Buildings generally qualify, while land does not.
The Boost can materially shape project timing and feasibility.
This incentive is designed to stimulate investment, particularly relevant in regions like Tauranga, Hamilton, and Queenstown, where construction activity continues to climb despite rising costs.
Below are some hypothetical scenarios demonstrating how the 2025 tax changes affect New Zealand commercial property investors, and the strategies that can help protect or lift returns.
Investor profile:
A Wellington investor purchases an office building in 2021 for $2.5M.
Purchase allocation:
Land: $1.2M
Building: $1.3M
Before the 2025 tax change:
Building depreciation (2% DV): $26,000 per year
Net rental income (pre-tax): $150,000
Taxable income: $124,000
After the 2025 change:
Building depreciation: $0
Taxable income increases to: $150,000
Additional tax payable:
$26,000 × 33% = $8,580 per year
10-year cumulative impact:
~$85,000 in lost tax benefits
Strategy: Fit-out and chattel apportionment valuation
Even if purchased years ago, a detailed valuation can often identify:
HVAC
Lighting
Switchboards and electrical
Security systems
Flooring
Partitions
These remain depreciable.
Potential outcome:
Reinstating tens of thousands in annual deductions and, in some cases, fully neutralising the effect of the building depreciation removal.
Developer profile:
A Tauranga developer is constructing a 1,200 sqm light industrial facility costing $4.8M.
If the asset is first available for use after 22 May 2025, the developer qualifies for the Investment Boost.
Eligible expenditure:
$4.0M (excluding land)
Tax benefit:
20% of $4.0M = $800,000 upfront deduction
At 33% tax rate → $264,000 immediate tax saving
If construction finishes in April 2025 instead:
No Boost
No building depreciation
Only fit-out depreciation available
Strategic adjustment:
The developer delays completion by six weeks → $264K in first-year tax savings, drastically improving project IRR.
Investor profile:
An Auckland investor owns a 1990s retail block valued at $3.6M, with limited depreciation options remaining.
The investor undertakes a $450,000 refurbishment including:
HVAC
LED lighting
Data/security systems
Partitioned layouts
New flooring
Tax treatment:
These elements qualify fully as depreciable fit-out.
Assuming an average depreciation rate of 13% DV:
Year 1 deduction: $58,500
Tax saving (33%): $19,305
Five-year cumulative impact:
Total depreciation: ~$258,000
Total tax savings: ~$85,000
Commercial upside:
Higher rents (often $35–50 per sqm uplift)
Improved tenant retention
Increased property value driven by higher NOI
This scenario illustrates that fit-out strategy has become more important than ever in a depreciation-free building landscape.
Investor profile:
A Christchurch buyer is acquiring a modern commercial property for $5.5M.
Default allocation (poor tax outcome):
Land: $2M
Building: $3.5M (all treated as non-depreciable)
Outcome:
No depreciation benefits.
With a valuation-led apportionment schedule:
Land: $2M
Building shell: $2.5M
Fit-out & plant: $1M (depreciable at 7–30%)
Tax impact in Year 1:
Fit-out depreciation (assume 15% DV): $150,000
Tax saving: $49,500
Without a proper allocation:
Tax saving = $0
This shows how negotiation and valuation advice at the time of acquisition can create $50K+ in annual tax advantages.
New Zealand’s new tax landscape isn’t necessarily punitive, it simply requires smarter structuring. Here are the most impactful strategies available to commercial property investors.
With buildings no longer depreciable, fit-out becomes the primary tax lever.
Appropriate asset separation can unlock deductions across:
Mechanical services
Electrical and lighting
Data and communications
Security systems
Specialist equipment
Carpets and floor coverings
Internal partitions
Signage and wayfinding
This is especially important for:
newly purchased assets
older buildings where fit-out was never itemised
buildings undergoing refurbishment
multi-tenant assets with diverse fit-out types
With interest deductibility restored in 2025, investors should revisit:
debt-to-equity mix
loan splits
fixed vs floating strategies
intercompany lending
shareholder loans
For investors with strong banking relationships, restructuring can materially improve after-tax cashflow - even with higher borrowing costs.
For new builds, expansions, and large-scale refurbishments, the 20% Boost can materially shift project viability.
Actions to consider:
Reassess capex programmes for Boost eligibility
Prioritise assets that attract both Boost and long-term depreciation
Use the tax saving to offset early negative cashflows
For older commercial assets (particularly retail, hospitality, and office) planned refurbs can:
materially improve tenant demand
unlock new depreciation schedules
improve value through uplifted NOI
The new regime rewards investors who treat depreciation as part of asset lifecycle planning.
Some investors may benefit from:
Company vs LTC structures
Consolidated group tax regimes
JV investment shells
Restructuring pre-acquisition
These should be considered in combination with finance structure and long-term goals.
The FY 2025-2026 tax changes mark a significant shift for New Zealand’s commercial property market. The removal of building depreciation will tighten cashflows for some investors, but the return of interest deductibility and the Investment Boost open meaningful opportunities for others.
In this new environment, success depends on proactive tax and valuation planning, not passive acceptance of policy changes. Investors who strategically assess asset allocation, refurbish intelligently, leverage deductibility, and time new developments well can materially improve outcomes.
With the right approach, 2026 can be an opportunity to strengthen portfolio performance rather than dilute it.