What is it?

A tax change to ensure that someone coming here short-term doesn’t trigger tax obligations for themselves or a foreign employer by working here – see our more detailed article for further information.

Thoughts?

The increase in “flexible working”, especially since COVID-19, has resulted in many employers introducing policies allowing employees to work remotely in other countries on a short-term basis. This type of policy can be complicated for employers to administer as each country will have different tax rules about when an individual or employer is obliged to comply with local tax rules.  

Earlier this year the Government introduced a new “digital nomad visa” to make it easier for people to choose New Zealand as a working holiday destination. The Bill ensures that tax rules shouldn’t be a barrier to people picking New Zealand as their destination of choice.

Normally tax rules will deem someone to be tax resident in New Zealand if they have been here for 183-days in a 12-month period. Under the proposals, where someone is here for longer (up to 275 days) with a visa and are working for an employer who doesn’t have a connection with New Zealand (that is, the employee is working for their employer from their home country and isn’t in New Zealand because the employer is running a business or expanding into New Zealand etc) there will be an exemption from New Zealand tax obligations for both the individual and their employer (including if the visitor to New Zealand is a director of a foreign company). This is a very pragmatic approach.

What is it?

Introduction of new method for calculating FIF income for certain taxpayers – see our more detailed article for further information. 

Thoughts?

The FIF rules have long been unpopular with those who need to comply with them as they can essentially result in tax being applied to unrealised capital gains when investments are held in foreign shares. This issue was bought to a head in 2024 when NZIER produced a study “The place where talent does not want to live” which highlighted how New Zealand’s tax policies were resulting in high net worth individuals leaving New Zealand after 4 years rather than making New Zealand their home (non-residents and certain returning New Zealanders can be eligible for a 4 year “transitional residence” tax exemption from the FIF rules).

In January 2025 the Inland Revenue undertook consultation on options to improve the FIF rules to stop this happening. The changes in the Tax Bill are the result of this consultation and follow on from an announcement by the Minister of Revenue in March.

The new rules will apply retrospectively from 1 April 2025 (this date is chosen as it was when many migrants who relocated to New Zealand during the COVID-19 pandemic were going to have their tax exemption expire). Under the proposals, certain taxpayers will be able to use a new “revenue account method” to calculate tax when shares have been sold, rather than paying tax on unrealised fluctuations in share values each year. This deals with issues where owners of unlisted businesses were leaving New Zealand because they couldn’t fund New Zealand liabilities on unrealised gains.

The FIF rules are notoriously complex, so the ability to submit on draft legislation is welcome to ensure that the rules achieve their goal.

What is it?

Allowing tax obligations to be deferred on illiquid shares – see our
more detailed article for further information.

Thoughts?

There was consultation earlier this year on issues related to how employee share schemes are taxed, particularly as to how they relate to start-up companies where often shares are illiquid and employees were unable to fund tax bills when they received shares from their employer.

The rules included in the Tax Bill are broader than originally proposed as they are not limited to start-ups. The key criterion is that the company must be unlisted (i.e. the shares are illiquid). Under the current rules a tax obligation arises on the difference between the value of the shares and the amount the employee paid for them when shares are received. Under the proposals, tax would only be crystalised at the time there is a liquidity event (such as selling the shares or the company becoming listed) – however the quid pro quo of deferring the tax bill is that the tax bill may be higher (i.e. if the value of shares has continued to rise between the date of acquisition and the liquidity event). These rules will be optional.

What is it?

A tax exemption for individuals selling solar excess power into the grid.

Thoughts?

Households who have made the move to install solar panels and who are routinely selling surplus electricity into the grid may be surprised to learn that technically that is probably taxable income to them.

Given the relatively small amounts involved, and the associated complexity of determining what costs are able to be deducted (as these need to be apportioned between the cost of generating electricity for home consumption vs sale into the grid), the pragmatic decision has been made to exempt the income from tax. This rule generally only applies to individuals but can apply to houses in family trusts in some instances. This is a sensible approach to keep things simple and to not have the thought of complying with complicated tax rules acting as a barrier to households selling surpluses into the grid. 

What is it?

Repeal of information collection law.

Thoughts?

Another controversial law, implemented under urgency with no consultation, is set for repeal. Section 17GB is most infamously known as the legislation which saw Inland Revenue undertaking “the wealth project”, requiring detailed financial and personal information from high wealth individuals.

The section was introduced to give Inland Revenue even fulsome powers to collect any information it considered helpful for tax policy development; however, its actual use ran the risk of politicising Inland Revenue, so its repeal is welcome.

The repeal of this rule doesn’t stop Inland Revenue collecting data using its other existing powers and more conventional measures. Inland Revenue has extensive powers to collect any information in relation to a person’s tax position and compliance with existing tax laws. What the repeal of the rules means is that information which is irrelevant to a persons’ tax positions is out of bounds – there was no restriction on what information could be collected under the law, instead it required that “a person must … provide any information that the Commissioner considers relevant for a purpose relating to the development of policy for the improvement or reform of the tax system.” While the actual use of the provision has been limited, the legislation could have been used to procure any information.

What is it?

Repeal of compliance cost intensive rules.

Thoughts?

When the previous Labour Government increased the top personal tax rate to 39% after the 2020 election, it surprised taxpayers by also implementing a complicated set of disclosure rules for trusts.

These were introduced to assess whether trusts were being used to mitigate the impact of the top personal tax rate. The trust disclosure rules came without consultation and were widely criticised by the tax community as being nonsensical, extraordinarily expensive to comply with, and it wasn’t at all clear what purpose all the information would serve. The fact the disclosures came with 48 pages of detailed instructions tells you a lot about the rules.

Earlier this year Inland Revenue completed a post implementation review of the rules, which suggested some refinements. With the trustee tax rate having been increased to 39% as part of Budget 2023, the need for the disclosure rules fell away, and the Government has announced these rules will now be repealed.

The compliance costs for trustees were never able to be quantified but a survey  estimated the average cost was between $784-$1,400 in the first year. With New Zealand having around 245,000 trusts, it is fair to say the compliance costs have been massive, and Inland Revenue would have allocated a lot of resources to collecting and processing the information (the administrative savings have not been quantified).

Part of the rationale for repealing the rules is that the Inland Revenue never needed special rules to collect the information, they already had sufficient powers to request information. It is expected that while the extensive trust disclosures will be going, there will still be some information which will need to be provided as part of the tax return process – hopefully information which is more streamlined and relevant.  

What is it?

Introduction of an ability for Ministers to agree to Inland Revenue sharing information with other government agencies when the information can be used to:

• Determine eligibility for government assistance
• Investigation of serious crime (those punishable by imprisonment for two or more years
• Remove the financial benefit of crime.
  

Thoughts?

The purpose of the information sharing is to create greater administrative efficiency across government. Currently the process of creating information sharing agreements can take 18 months or more. What can be shared has some limitations, including that the disclosure is reasonable and practical, it does not undermine the integrity of the tax system, it supports voluntary compliance and the Privacy Commissioner has been consulted. The Commissioner of Inland Revenue will be required to publish details of all information sharing agreements, which are still expected to take three to six months to put in place.

It's likely there will be concerns that this proposal gives the Inland Revenue too much power to share information without proper scrutiny. While the Privacy Commissioner must be consulted, the legislation doesn’t require his views to be accepted. Significantly in designing the law, the Privacy Commissioner was consulted and considered the proposal was “unnecessary and disproportionate”, the proposal also hasn’t undergone any previous public consultation. 

What is it?

Clarifications to ensure the Investment Boost legislation works as intended. Changes are:

• Making it clear that the ability to use the low value asset threshold ($1,000) is assessed based on the gross asset cost (i.e. before Investment Boost deductions are claimed)
• Ensuring the deduction is treated appropriately in situations where assets are transferred, such as amalgamations
• Ensuring that when assets are transferred between associated persons, that the maximum depreciation cost base available to the acquiring entity is the gross asset cost (i.e. before Investment Boost deductions were claimed).

Clarification of when an asset is “secondhand” and therefore not eligible for Investment Boost.

Thoughts?

Investment Boost was the flagship tax announcement in Budget 2025. Because Budget announcements are generally developed in secret, there was no consultation prior to the announcement on Budget Day. Inevitably some minor issues were identified in the drafting of the legislation and the Bill contains minor amendments which are intended to ensure the legislation works as intended. All changes are retrospective back to 22 May 2025. It’s great to see
remedial changes being put through quickly as it is critical the legislation is correct. 

The Bill commentary provides some examples which provide more clarity about when assets qualify for Investment Boost. There has been some confusion around assets like cars, which may have been used for test drives prior to sale; and whether property assets could be treated as trading stock for the purpose of the rules. The Bill attempts to make this clearer.

What is it?

New section in the Income Tax Act 2007 will give employers flexibility to pay fringe benefit tax (FBT) when an employee is reimbursed for expenditure which would be an unclassified benefit if it had been provided differently.

Thoughts?

The PAYE v FBT distinction is one of the most vexxed areas of
employment tax. No one wants to find out they've paid FBT when they should have paid PAYE because an employee paid for something and was reimbursed. The concept of "expenditure on account of an employee" is not well understood, but in essence under existing law if an employee is reimbursed forthe cost of a benefit the reimbursement is subject to PAYE rather than FBT.

The proposal to provide optionality of which tax to pay should simplify compliance for many employers who may have been going out of their way ensure benefits were purchased in a manner allowing the FBT regime to apply. However, it is critical to understand that, as currently drafted, the legislation requires that tax must be paid, so the rule will not be available if the reimbursement is for a cost which is exempt from FBT (e.g. for employers who are able to use one of the exemptions from FBT).  

What is it?

Employers will be able to choose to treat gift cards as being subject to FBT rather than PAYE in most instances.

Thoughts?

On 16 April 2025 Inland Revenue published a statement which concluded that “open loop cards” were subject to PAYE rather than FBT. This conclusion was contrary to what many employers were doing when providing gift cards to employees.

The change in the Bill is proposed to be retrospective to 16 April 2025 to ensure that employers who have been paying FBT are not subjected to PAYE assessments. Employers who prefer to tax gift cards through the PAYE regime can continue to do so. This is a good approach to solving an unexpected problem.

However, the proposed fix is not entirely without complication.

First, the Bill contains a rule which specifies that FBT will remain payable where a gift card is provided as a substitute for remuneration. This concept is not defined and is therefore adding uncertainty into the rules (as FBT is a tax on substitutes for remuneration). It is understood that this clause is intended to prevent a scenario where a substantial portion of cash remuneration is converted togift cards in order to circumvent social assistance thresholds.

Second, the Bill is amending the definition of “unclassified benefit” to exclude gift cards, instead these will become a new category of fringe benefit with its own separate attribution / pooling class. Because gift cards are excluded from the definition of unclassified benefit, the de minimis rule will also no longer apply. This change was not commented on in the Bill Commentary so it is unclear whether this was deliberate or an oversight. 

What is it?

Small tweaks to the FBT rules.

Thoughts?

Following consultation earlier this year, many employers were expecting the Bill to include some fundamental reforms to how FBT applies to motor vehicles and unclassified benefits. Alas, despite the reforms having the potential to result in considerable compliance cost savings for employers there was not unanimous support for the proposals following consultation. Accordingly, the major reforms will hopefully undergo further consultation on refined proposals.

In the meantime, the Bill contains only a few minor tweaks (in addition to the FBT v PAYE and gift card changes explained above.

What is it?

A more technical fix up to an issue in the GST rules.

Thoughts?

This is something which Rt Hon Winston Peters announced in January and essentially corrects an interpretative issue with the GST rules where it was determined that a joint venture needed to be registered and accounting for GST on behalf of all members, which was counter to common practice in certain industries.

The rules are a sensible conclusion to an interpretative impasse and ensure that there is flexibility to get to the right GST answer.

What is it?

Businesses who are selling things worth over $1,000 to non-businesses won’t need to demand information from customers.

Thoughts?

The “Taxable Supply Information” (TSI) rules replaced the well understood “Tax Invoice” rules in 2023. It was inevitable that some issues would arise from the way the rules were changed. The new rules included a new information requirement that suppliers needed to hold TSI for all supplies. This has led to instances where private individuals felt pressured to supplypersonal details when making purchases of items costing over $1,000.

The removal of the requirement to collect data on unregistered customers is a sensible one, but could go further as inevitably some suppliers will instead have to ask customers if they are GST registered even in situations where a store is clearly supplying the consumer market.  

What is it?

Two clarifications to the non-resident contractors tax (NRCT) rules, including that NRCT does not apply to software-as-a-service, platform-as-a-service and infrastructure-as-a-service contracts, except where infrastructure or people are physically in New Zealand. 

Thoughts?

The NRCT rules were designed a long time ago and have not kept pace with the changing ways in which goods and services are provided, particularly in relation to software. It is pleasing to see an amendment to the definition of “contract activity or service” to specifically exclude these software delivery methods.

What is it?

A wide range of other remedial items are covered in the Bill including changes to:

• KiwiSaver
• Defined benefit schemes
• Research and Development Tax Incentive
• Cryptoassets
• Short-selling foreign shares
• Amounts received in trust by public or local authorities
• Increases to the cash basis person rules in the financial arrangements rules
• Unclaimed money rules

Thoughts?

As usual, the annual omnibus tax bill contains a considerable number of changes to tax laws. It is pleasing to see a number of remedial issues being cleared up quickly.