It would also bring substantial changes to the Foreign Investment Fund (FIF) regime, modifications to the international tax rules and a range of remedial amendments affecting businesses, investors and closely held companies.

Contents: Motor Vehicle FBT reform | International tax and financial arrangement changes | Approved Issuer Levy | Charities and NFPs | Cryptoassets | GST | Transitional residency | Non-Resident Contractors' Tax | RWT | Our comments  

The Taxation (Annual Rates for 2026-27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill 

The bill was introduced to Parliament on 10 September, with the first reading on 15 September. Submissions are being accepted, with an unofficial due date of 1 December 2026. The above changes have been well signalled and, in the case of FBT, extensively consulted on. 

The proposals reflect a continued focus on reducing compliance costs, modernising outdated tax rules and addressing areas where Inland Revenue has identified practical difficulties in administration and compliance. The headline changes share bipartisan support and we anticipate that they would also likely be enacted if a Labour-led government were to win the 7 November election. 

Motor vehicle FBT reform takes centre stage 

The headline measure in the bill is a fundamental redesign of the motor vehicle FBT regime taking effect from 1 April 2027. 

Since FBT’s introduction in 1985, employers have struggled with a system built around concepts such as vehicle availability, day counting, logbooks and multiple valuation methodologies. While the existing rules were originally intended to tax private use of employer-provided vehicles accurately, they have become increasingly complex and costly to administer. In addition, many employers felt the rules were unfair. Examples included FBT continuing to arise during lockdown periods even where the employee could not benefit from the use of the vehicle, and full FBT arising where vehicles were transported between work and the home of the employee – even for valid business-related reasons, such as security.

The proposed reforms seek to replace that complexity with a more practical category-based approach, with effect from 1 April 2027. 

Vehicles would generally be allocated to one of six categories based on their expected level of private use. Rather than tracking actual availability and calculating taxable days, employers would apply a fixed inclusion rate to reflect the expected private benefit associated with each category.

Proposed motor vehicle FBT categories, conditions and requirements

The proposed approach recognises that many vehicles are primarily business assets and that the compliance burden associated with proving limited private use often outweighs the tax at stake. In particular, the “close enough is good enough” approach means incidental use of a vehicle for private purposes would not give rise to an FBT liability – unlike at present.

Alongside the category-based system, the bill introduces a simplified valuation framework. The existing Income Act valuation tables would be replaced by a streamlined set of rates based primarily on vehicle type and fuel source. Petrol and diesel vehicles would generally continue to attract the highest valuation rates, while hybrid and electric vehicles would receive lower rates reflecting their reduced operating costs. 

The bill would also introduce a statutory requirement for Inland Revenue to review valuation rates every four years using objective vehicle operating cost data. This should help ensure that the rates remain aligned with real-world costs as vehicle technology evolves; and should prevent the situation we ended up with where rates set more than 20 years earlier continued, despite doubts about suitability. 

One of the more practical aspects of the reform package is the expanded role of vehicle branding. Many of the reduced-rate categories would require vehicles to display readily identifiable employer branding to qualify for lower inclusion rates, with limited exceptions. From a policy perspective, branding is intended to reinforce the business purpose of vehicles and discourage inappropriate private use. However, it would also create net operational considerations for employers. Businesses would need to assess whether branding is practical, commercially desirable and consistent with employee safety requirements. 

Heavy duty vehicles would remain outside the FBT regime, but these vehicles would now need to weigh more than 6,000 kilograms (the current limit is 3,500 kilograms). 

International tax and financial arrangement changes 

The bill also contains a range of amendments affecting international taxation and financial arrangements. 

Retro-dating to 1 April 2026, the new Revenue Account Method would apply to New Zealand residents who hold unlisted foreign shares. New Zealand residents taxed concurrently in another jurisdiction (primarily Americans) could also use the method for all their foreign shares. The changes would apply from the 2026/27 income year. 

The FIF de minimis threshold would be increased from $50,000 to $100,000 from 1 April 2026 for the 2026/27 and later income years. This is welcome as the $50,000 threshold was last set in 2000, and cumulative CPI inflation since then has been a couple of percentage points shy of 100%. 

Investors who utilised the attributable FIF method would be able to keep using it, even if their ownership interest fell below 10%. This would only apply to investors whose ownership interest was more than 10% when they entered the FIF rules. 

A proposal would see individuals and certain trusts able to utilise the cost and comparative value methods concurrently when FIF interests don’t have a readily available market value, while retaining the choice to use the comparative value method when market value is readily available. It is already possible to utilise the cost and fair dividend rate methods concurrently in similar circumstances. 

The financial arrangements rules have long been disliked by individuals as both unrealised and realised foreign exchange movements have been treated as taxable income, despite arising on relatively vanilla arrangements such as mortgages with foreign banks and foreign currency personal bank accounts. This has had a particularly nasty sting in recent years as the value of the New Zealand Dollar has fallen, giving rise to deemed income under these rules. 

A new functional currency rule would allow individuals and a limited number of family businesses and trusts to calculate net income from foreign currency financial arrangements in a currency other than New Zealand Dollars. 

It would be possible to either calculate net income for each financial arrangement in the relevant foreign currency or calculate all net income for all foreign currency financial arrangements in a single foreign currency. All financial arrangements denominated in a foreign currency would need to use the rule, with a modified wash-up calculation being required when entering and exiting the regime. The rule would also be limited to more vanilla financial arrangements, with derivative instruments being strictly excluded, along with foreign currency speculators being prohibited from using this rule. This would effectively remove foreign exchange movements from taxable income. 

An additional rule is that certain taxpayers would not be required to apply the spreading rules to certain financial arrangements (meaning they would effectively be cash basis persons). Each arrangement would need to meet five criteria to qualify: 

• The arrangement is held by an individual that is a New Zealand tax resident.
• Income from the arrangement does not have a New Zealand source.
• Income from the arrangement is liable to tax in a foreign jurisdiction based on the individual’s citizenship or working rights.
• The foreign jurisdiction has a double taxation agreement with New Zealand, and
• The person does not claim foreign tax credits in the foreign jurisdiction in respect of income recognised under the spreading rules. 

Bill commentary acknowledges this is primarily designed to provide relief to United States citizens and green card holders. 

A final rule would expand the definition of excepted financial arrangements by: 

• Broadening existing eligibility for private purpose loans denominated in a foreign currency, by removing the requirement for the borrower to be a cash basis person.
• Treating transaction accounts denominated in a foreign currency as excepted financial arrangements, when that account has a private or domestic purpose, and
• Limiting the effect of exchange rate movements on existing exceptions for some variable principal debt instruments. 

Changes to Approved Issuer Levy 

Currently, taxpayers who are subject to the Approved Issuer Levy have to file monthly unless the levy costs them less than $500 each year, in which instance they can file six-monthly. This creates significant compliance costs and as a result, two major changes are proposed: 

• The $500 filing threshold would be increased to $10,000; and
• Annual filing would be available for borrowers who fall below the filing threshold. 

It is estimated that 55% of Approved Issuer Levy filers would benefit from these changes. 

Charities and Not-for-Profits (NFPs): Membership subscriptions, in-year refunds and donation tax credits 

As many will recall, last year Inland Revenue released a draft operational statement that concluded membership subscriptions may become taxable. This followed an Australian court decision which held that the mutuality principle could not apply when an NFP is prohibited from making distributions to members. 

The outcry from the Not-For-Profit sector and acknowledgement of the fact that NFPs often rely on membership subscriptions to fund their activities gave the government impetus to amend the Income Tax Act to ensure the status quo (membership subscriptions are generally not taxable) is retained. 

At present, NFPs benefit from a statutory deduction of up to $1,000. The bill would see that increased to $10,000 but it would be targeted – so NFPs with income of more than $10,000 would be subject to tax on the full amount. Associated bodies, such as regional or district branches of a national Not-For-Profit organisation, would not individually qualify for this. This deduction would apply from the 2027/28 and later income years. 

It is currently not possible for recipients of a donation tax credit to obtain in-year refunds or have their credit refunded to a charity of their choice. Legislative change would enable Inland Revenue to periodically refund approved donation tax credits during the year instead of requiring donors to wait until year-end, and it would be possible to have the credit refunded to a chosen charity. 

One caveat is that donors would not receive a donation tax credit on any credits that they choose to have refunded directly to a chosen charity. However, the status quo of receiving a tax credit refund and then donating it yourself to a charity of your choice would keep eligibility for a donation tax credit. Receiving tax credits during the year would only be available when the taxpayer has sufficient reportable income (e.g. salaries and wages). Even if there is non-reportable income (e.g. self-employed income), the taxpayer would need to wait until the end of the year to receive their refund, as present. Both proposals would take effect from 1 April 2028. 

Honoraria provided by NFPs is currently treated as schedular payments rather than salary or wages, with associated requirements to withhold 33% on the payment and file an IR3 tax return instead of utilising automatic assessments. From 1 April 2028, it is proposed that honoraria paid by NFPs could be treated as salary and wages or continue as a schedular payment. 

It is proposed that from 1 April 2028, non-resident charities not registered under the Charities Act would no longer be able to treat investment income such as interest and dividends as non-taxable. This would not impact charities listed under Schedule 32 of the Income Tax Act or charities registered under the Charities Act. 

From the 2028/29 income year, the bill would require private trusts that allocate beneficiary income to charities to pay the amount into a designated charity account (with a financial institution, such as a bank) within a specific period of time (generally within the tax return filing period) for that income to be tax exempt. 

Cryptoassets: Tax bill proposes stablecoins change

Cryptoassets are generally treated as revenue account property, which means that any gains on their sale are taxable (and losses deductible). 

With the evolution of the cryptoasset space, practical issues are now arising whereby transactions are treated as giving rise to income solely because they use a cryptoasset. One key area of concern is stablecoins, which are cryptoassets designed to maintain a stable value relative to a fiat currency, such as the United States Dollar, or an asset such as gold. Cryptoassets are being increasingly used as a transactional medium instead of as a speculative investment, and accounting for tax on them is generally creating significant compliance costs despite little to no economic gain arising from movements in the value of the stablecoin itself. 

It is proposed that disposals of eligible stablecoins after 1 April 2027 be treated as not taxable if the only reason for taxation is it being deemed to be acquired for the purpose of disposal. 

GST changes proposed for 2027

There are several GST-related proposals. 

The first would see electricity exported from residential premises to the national electrical grid treated as a zero-rated supply. Like the income tax changes made last year, this proposal was primarily designed as an integrity and compliance cost reduction measure. It would take effect from 1 April 2027. 

Non-residents supplying certain zero-rated supplies of services to other non-residents would have the ability to choose not to register for GST, taking effect the day after the bill receives Royal assent (expected to be late March next year). This is primarily designed as a compliance cost-saving measure, as taxpayers in this situation would receive GST refunds. 

Presently, someone who spends less than $10,000 on goods and services prior to registration for GST cannot claim GST back upon registration, even if they utilise those goods and services as part of their taxable activity and are liable to account for GST on the sale of those goods. 

Even where someone spends more than $10,000, they are subject to delay due to specific adjustment rules. It is proposed that from 1 April 2027, GST deductions for goods and services acquired before a taxpayer registers for GST would be retrospectively available when the taxpayer becomes GST registered. The amount claimable would be subject to a cap (generally the lower of market value and cost price), subject to specific rules with respect to associated persons as well as re-registration. 

New rules are also being introduced with respect to the correction of GST errors. There are four approaches proposed, depending on the number of taxpayers impacted, the size of the error and whether the correction involves correcting an error or an inaccuracy. 

Transitional residency changes

 Inbound migrants and some returning New Zealanders can access a four-year tax concession whereby any overseas passive income is treated as non-taxable. Currently, that period commences when someone becomes a tax resident under New Zealand domestic legislation, even if they might “tie-break” to an overseas jurisdiction under a relevant double tax agreement. The bill proposes that the four-year period would only commence when someone tie-breaks to New Zealand under a relevant double tax agreement. The status quo would remain if there is no double tax agreement. 

Non-Resident Contractors’ Tax modernisation 

Payments made to non-resident contractors are subject to a specific withholding regime referred to as Non-Resident Contractors’ Tax (NRCT), at the rate of 15%. This is notorious for creating compliance headaches. The bill proposes to amend the rules and reduce the headaches, while still ensuring that NRCT acts as a solid revenue integrity measure. 

The proposals would see the monetary exemption threshold increased from $15,000 to $75,000, and a single-payer approach taken. This means payers of non-resident contractors would only need to consider those contracts, not other contracts that the contractors enter with third parties, when accounting for the new $75,000 threshold or the 92-day exemption. These amendments are proposed to take effect from 1 April 2027. 

Also with effect from 1 April 2027, payments to branches, limited partnerships and representative offices would not be subject to NRCT, provided the following conditions are met: 

• The non-resident contractor has an IRD or GST number; and
• The non-resident contractor has been registered with the Companies Office for at least 24 months prior to the contract payment. 

Resident Withholding Tax (RWT) on dividends 

Application of the 39% top personal and trust rate has resulted in those taxpayers needing to pay a top-up on dividend income, for which Resident Withholding Tax has only been withheld at a maximum of 33%. A flow-on consequence has been these individuals and trusts being subject to provisional tax. 

The bill proposes to allow Resident Withholding Tax on dividends to be withheld at a maximum of 39% if the payer and recipient agree. For a fully imputed dividend, this would be 11% withholding. This would take effect from 1 April 2027. 

Baker Tilly Staples Rodway comments on tax proposals 

The proposals in the bill have largely been well signalled and the small number of surprises are for non-controversial items where the aim is to reduce compliance costs. As mentioned earlier, these proposals appear to have bipartisan support and we anticipate they will go ahead regardless of whether the election results in a National- or Labour-led government. 

The FBT changes are welcome. FBT is designed as a backstop to the PAYE system but has become a bludgeon. It’s beneficial that the bill recognises elements of private use of business motor vehicles and treats them accordingly. The valuation proposes are also more appropriate and the requirement for a review every four years should prevent the status quo of outdated rules set more than 20 years ago. We hope the other changes which were consulted on in 2025 will be implemented soon, particularly the proposals around a new per benefit de minimis for unclassified benefits such as bunches of flowers. 

The expansion of the Revenue Account Method is also welcome, but it is unfortunate that the government is still limiting access to this method to holders of unlisted shares and primarily to American holders of listed shares. Our view remains that all taxpayers should have access to the Revenue Account Method for all investments. The raising of the FIF de minimis threshold is also welcome and should ensure that those dabbling in foreign equities are not subject to the often-high compliance costs associated with the FIF rules. 

The changes to the financial arrangements rules will also be beneficial. Many an awkward conversation has taken place where we’ve had to explain income arising due to foreign currency movements alone, and these should be substantially reduced if the proposals are enacted. 

We agree with the Approved Issuer Levy changes, especially as many payers will be able to file their Approved Issuer Levy return annually. One potential improvement could be to allow them to file that return as part of their income tax return, primarily to enable balance date alignment. 

Changes in the Not-For-Profit space were well signalled and have been followed through. It is great that membership subscriptions, fees and levies will not be taxable. However, it is clear there is a potpourri of taxation treatments depending on whether the NFP is a sports club, a Cosmopolitan club or some other body, and we would suggest that further review be undertaken. 

Some of the other proposals are clearly designed as anti-avoidance measures and it is unfortunate they were not adopted first instead of the $100,000 donation rebate cap that was enacted earlier this year. The cap will likely hinder philanthropy, while these other changes could have resolved the concerns of policymakers. 

The cryptoassets changes are pleasing and appear to recognise the rapidly evolving nature of the cryptoasset space. 

The GST changes take on board submitter feedback after release of the issues paper earlier this year. Further tweaks could be made to ensure that their objectives are better met. 

The transitional residency changes are terrific, as they should eliminate the unfairness that arises when someone becomes New Zealand tax resident by virtue of having a permanent place of abode but still being tax resident in another country. 

NRCT modernisation should significantly improve compliance in this area and ensure that the regime becomes a solid revenue integrity measure. 

The ability for 39% RWT to be withheld on dividends will be highly beneficial. We have been aware of too many instances of individuals and trusts having to account for provisional tax because insufficient RWT had been withheld on their dividends. 

Given the significance of the legislative change, Baker Tilly Staples Rodway will be submitting on the bill, seeking to ensure that the objective of simplicity is upheld. If you have any views on the bill, or would like assistance in drafting your own submission, please contact your local Baker Tilly Staples Rodway advisor.