Plenty of small, but meaningful, tax changes in Budget 2026

It came as no surprise that Budget 2026 didn’t deliver an election year lolly scramble of tax cuts, but it has delivered good news to taxpayers who don’t like parts of the existing Fringe Benefit Tax (FBT), Foreign Investment Fund (FIF) rules or Non-Resident Contractors Tax (NRCT) rules. A line is also drawn under the taxation of charities and not-for-profits, providing decisions on reforms after a number of years of speculation. The Research and Development Tax Incentive (RDTI) is also on the receiving end of some tweaks.

The announcements continue a theme by the current government of incremental reform, aimed at removing barriers and simplifying compliance costs; no doubt aided by having a chartered accountant in the position of Minister of Revenue. Real life experience of compliance costs has undoubtedly contributed to the long list of individually small but collectively meaningful tax reforms since coming to office in 2023.

It’s not all upside for taxpayers, with some additional revenue coming from reductions in donation tax credits, foreign-owned banks being on the receiving end of some technical tax changes, and of course, some additional funding to Inland Revenue to continue to increase enforcement activity.

FBT reform

Inland Revenue consulted on improvements to FBT in early 2025. After a minor hiccup with the proposals being mislabelled as “ute tax 2.0”, employers are now expected to benefit from a much simpler FBT regime when it comes to motor vehicles. While detailed documents are yet to be released, the crux of the proposal is to replace the existing rules for calculating FBT on motor vehicles and to instead adopt a categorisation approach whereby a set FBT inclusion rate is applied to a vehicle based on how it is used and the extent of private use available.

Gone will be the days of filling out detailed logbooks. Vehicles, whether they are a ute, or an electric vehicle (EV), should have tax applied based on the level of private use rather than what the vehicle looks like.

The existing FBT rules provide a disincentive for businesses using EVs, so this reform has the potential to materially reduce the cost of EVs for businesses. In the medium term, this will have flow on benefits for households as there will be an increased number of EVsmoving into the secondary market as corporate vehicle fleets are refreshed.

Expected features of the motor vehicle proposals include:

• Vehicles will be categorised based on the intended use of the vehicle. A vehicle will be placed in one of six categories, with the taxable value of the vehicle being progressively scaled down the less the vehicle is designed to provide the employee with a “perk”. If a vehicle has no or very limited private use, the FBT cost may be $0, even if the car is occasionally taken home by employees.
• Once in a category, employers will no longer have to monitor how the vehicle is used on a daily basis, meaning logbooks may be a thing of the past.

The formula for how FBT is being amended, with lower FBT being payable for EVs and hybrid vehicles (to reflect the lower running costs), compared with a petrol or diesel vehicle.

The fiscal cost of these changes is modest, at $600,000 over four years, meaning many taxpayers may still be paying roughly the same amount of tax, but will have reduced compliance costs in doing so.

Part of the reason for prioritising this reform is a widespread belief that many taxpayers are not currently correctly complying with the existing law because of its complexity and misconceptions that all utes automatically qualify for a work related vehicle exemption. The approach of simplifying the rules is also expected to result in more active policing that the rules are being followed.

Foreign Investment Fund Regime

Until recently, taxpayers have been quietly hating the FIF regime, and particularly its function as a quasi-wealth tax applying to foreign shares. With many new migrants and returning New Zealanders since the COVID-19 pandemic, there have been more people willing to publicly express their dislike of this form of taxation. New migrants coming to New Zealand qualify for a four-year “tax holiday” on foreign investments, and discovering the financial consequences of the rules once the exemption lifts has led to many high wealth migrants leaving after four years. Broadly, the concern has not been the need to pay some tax, but rather the way the FIF rules calculated tax, resulting in New Zealand tax liabilities when there is no cashflow to fund it (especially for unlisted shares which can’t be sold), and potential double tax issues due to mismatches between when New Zealand and other countries are imposing tax.

This resulted in consultation in late 2024 and an announcement in early 2025 of a new method of calculating FIF income for a subset of investors. This new methodology, known as the “revenue account method” (RAM), was enacted into legislation in March 2026, with effect from 1 April 2025. In short, certain investors are able to elect out of the annual tax on unrealised gains in share value and instead pay tax on capital gains at the time an unlisted share is sold and a gain is realised; with a 30% discount applied.

The application of RAM is currently limited to new migrants and returning New Zealanders who have been away for more than 5 years. That still left many taxpayers continuing to be unhappy with the rules.

Budget 2026 now extends the eligibility to use RAM to “all New Zealand taxpayers”, noting this is expected to be limited to just natural persons and family trusts.

The entry point into the FIF rules has been holding offshore investments costing $50,000 (excluding listed Australian shares). This threshold has been left unchanged for a considerable period of time, and Budget 2026 increases this to $100,000. Undertaking FIF calculations can be complicated and this extension will be welcome by many taxpayers who are increasingly dabbling in share investment. While complicated tax calculations won’t be necessary to calculate FIF gains, taxpayers will remain taxable on dividends when they are received. Any gain on the sale of shares will be taxable if the shares were acquired with the intention of disposal (i.e. applying normal tax rules, explained here).

Financial Arrangements Rules

As a complementary change to the FIF reforms, it is also proposed to simplify the financial arrangement rules for many taxpayers by removing foreign exchange movements on low-risk foreign currency arrangements from the rules. This will be very welcomed by taxpayers who have received unexpected tax bills on unrealised exchange movements. Some amendments may only apply to migrants, we are waiting for the release of further detail.

Research and Development Tax Incentive (RDTI)

The current version of the RDTI has been in place since 2019. The RDTI legislation included a mandated requirement to review the effectiveness of the regime after 5 years of operation. This review was undertaken and it made a number of recommendations to improve the regime. Budget 2026 gives with one hand with some improvements, but takes with the other by reducing some of the caps on eligible spend.

The changes are:

• Introducing in-year payments of the RDTI to better support cashflow
• Introducing a new administrative discretion to allow Inland Revenue to accept late returns or correct administrative errors
• Extending the regime to allow mining companies to qualify on an equal footing with other industries (currently they are effectively locked out of the regime)
• Significantly reducing the cap on non-administrative internal software from $25 million to $3 million (this change alone is expected to save Inland Revenue $87 million in RDTI over four years).
  

Non-Resident Contractors Tax (NRCT)

NRCT is a difficult tax to comply with and Budget 2026 provides certainty that some improvements are coming. Proposals for reform were first mooted several years ago, with some improvements put in place under the previous Government. These reforms will continue to make the regime less onerous:

• Increasing the de minimis threshold from $15,000 to $75,000
• Introducing a “single payer view” when assessing eligibility for exemptions
• Introducing a new tax code for NRCT payments
• Introducing a permanent exemption from NRCT for aircraft leasing from 1 April 2026.
  

Charities and Not-For-Profits

The taxation of charities has been kicked around for a number of years, with many people having strong opinions on the appropriateness of certain tax exemptions. After a thorough review and some very passionate consultation responses, the process is now closed with the following decisions being announced:

• Placing a cap on the level of donations which qualify for the donation tax credit. This is currently unlimited and will be restricted to $100,000 (an effective tax credit of $33,333)
• Making it easier to claim donation tax credits by allowing these to be claimed throughout the year rather than waiting until year end.
• Allowing donors to gift their tax credit to the charity
• Making it easier for not-for-profits to tax payments made to volunteers
• Increasing the level of net income a not-for-profit can earn before needing to pay tax from $1,000 to $10,000
• The removal of the tax exemption for non-resident charities
• Introducing integrity measures for trust income allocations to tax-exempt beneficiaries
• Ensuring the member subscriptions for not-for-profits remain non-taxable (consistent with current practice, but in contrast to a recent Inland Revenue interpretation of the existing law).
  

Banks

Foreign-owned banks are subject to an industry specific set of thin capitalisation rules. These rules are being adjusted to bring the thresholds within the rules in line with the prudential requirements issued by the reserve bank. This change is expected to increase tax revenue by $45.2 million over four years.

In addition to this technical tax change, Budget 2026 does include a new “levy” on banks, non-bank deposit takers, insurers and other financial market participants. The levy is intended to fund the cost of services provided by the Reserve Bank. The levy is expected to raise $290 million over four years. Consultation will begin on the technical detail of the levy, which is expected to apply from mid-2027.

Shareholder loans

Consultation on the treatment of shareholder loans made a splash earlier this year and were generally unpopular. While the Government had previously backtracked on some of the proposals, one uncontroversial proposal is confirmed as proceeding in Budget 2026. This is a technical law change to ensure that when a company is removed from the Companies Register that a tax liability will arise on unpaid loans after six months. This law change takes effect from 4 December 2025, being the date the change was originally proposed.

This change is being made because companies are regularly being removed from the companies register with shareholder loans outstanding. Companies liquidated through a formal liquidation process have had the average loan balance of $213,000.

Inland Revenue funding

In another case of giving with one hand and taking with the other, the Government was clear before the Budget that government departments were expected to find baseline savings. In Budget 2026 it is confirmed that Inland Revenue is expected to find baseline savings of $15.8 million per year. However, Inland Revenue is also appropriated an additional $15 million per year which is to be put toward compliance activities. This funding is expected to return $3 per dollar invested. This additional funding is in addition to the increased annual funding in Budget 2024 and Budget 2025.

Other changes

Other tax-related changes announced are:

• Amendments to simplify Working For Families by changing the definition of income. This is intended to make it easier for families to qualify and to reduce the need for manual reviews and payment adjustments.
• Adjustments to the residency requirements for Working For Families.
  

When will these changes be made?

Often Budget tax announcements are followed by the immediate release of legislation, which is passed through Parliamentary processes under urgency. In the case of Budget 2026, the Taxation (Budget Measures) Bill (No 3) was passed on 29 May and received Royal Assent on 5 June. This Bill included 4 measures (donation tax credit cap, NRCT change for aircraft leasing, shareholder loan change and Working For Families changes), with the remaining changes described above expected to be included in an omnibus tax bill later this year.

It is expected that the remaining items, which supported by the Government, may need further refinement or consultation through the Generic Tax Policy Process (GTPP) to ensure the changes work as intended. The next likely tax legislation will be an “annual rates” omnibus bill, which is expected to be released in August or September this year. Based on prior bill processes, the legislation will be referred to the Finance and Expenditure Select Committee and submissions called for. A technicality to be aware of is that when Parliament dissolves for the election on 1 October all bills will lapse and will need to be reinstated by the next Government.

For more information about any of the changes in Budget 2026, please contact your usual Deloitte adviser.