The Bill contains few surprises and is primarily designed to keep the tax system well maintained, with most changes having been previously signalled. We discuss key proposals below. We also cover the Government’s announcement that it’s reopening property investment, with conditions, to wealthy overseas investors.

FBT reform has been delayed

The Bill is notable for the absence of material reform to the FBT rules, which had been consulted on back in April. While there had been a clear desire to provide speedy reform of the FBT rules, it seems the task has been far more complex than the government had anticipated and therefore further action has been delayed.

It is possible an Amendment Paper (the new name for a Supplementary Order Paper) might be introduced as the Bill works its way through the Parliamentary process, as it has been used before as a tool for other legislative amendments.

New rules for New Zealand visitors

In January, the government announced that holders of visitor visas can work remotely for foreign employers or clients while visiting New Zealand, with an expectation that this ability would last for visits of up to nine months. The usual rule is that a person becomes a tax resident after being in New Zealand for six months, so the amendment brought a risk of these visitors becoming New Zealand tax residents, triggering income tax and GST obligations for them and, potentially, their overseas employer. 

Therefore, this Bill would introduce a new tax category of non-resident visitor. A non-resident visitor would be exempt from the 183-day tax residency test, with a non-resident visitor being a natural person who is: 

• In New Zealand for 275 or fewer days in total across an 18-month period, counting the arrival and departure days as whole days.

• Not a New Zealand resident or a transitional resident immediately before they become a non-resident visitor.
• Not undertaking work in New Zealand that:

  – Is for a New Zealand resident or a New Zealand branch of a non-resident, or

  – Is offering goods and services in New Zealand for income (from people or businesses in New Zealand), or

  – Requires the person to be physically present in New Zealand

• Not receiving a family scheme entitlement (this includes their spouse, civil union partner or de facto)
• Lawfully present in New Zealand
• Tax resident in a jurisdiction that imposes a tax that is substantially the same as income tax

Should someone cease to be eligible for non-resident visitor status, then they would generally become a New Zealand tax resident on a prospective basis (i.e. there would be no backdating of their New Zealand tax residency status under the usual tests).

Income derived by a non-resident visitor would be exempt for income tax purposes, except for non-resident entertainers who would continue to be taxed under existing rules. Legislative amendments would also mean the employers of non-resident visitors would not create a permanent establishment in New Zealand merely because their employee was a non-resident visitor. GST registration would also be optional for non-resident visitors.

One significant benefit of this proposal is that because the visitor would not become a New Zealand tax resident, they would retain access to the transitional residency rules should they ever choose to migrate here permanently, or even spend several years in New Zealand later in life. The transitional residency rules provide a one-off four-year exemption from overseas passive income for most new migrants and some returning expats.

New Foreign Investment Fund calculation method

A new means of FIF calculation, the revenue account method, is proposed to be enacted with retrospective effect from 1 April 2025, but with limited application.

Access would generally be limited to shares in a foreign company that were acquired before the shareholder became a New Zealand tax resident and which have the following characteristics: 

• The share is not listed on any stock exchange
• It cannot be redeemable for market value
• The share is not in an entity that derives 80% or more of its value from shares of the type above

Additionally, taxpayers who are subject to tax in another country on the disposal of shares based on their citizenship or a right to work and live in that country (generally citizens and green card holders of the USA) can choose to use the revenue account method on all foreign shares (including listed shares).

Under this method, a taxpayer would only return income on realised amounts (dividends and share sales) with a 30% discount being applicable to gains and losses on disposal. Losses would only be able to be offset against future revenue account method income.

For a taxpayer to be eligible to use the revenue account method, they would have needed to be a non-resident for at least five years, and have become a New Zealand tax resident on or after 1 April 2024, or be someone who still had transitional resident status as at 1 April 2024, or be a family trust whose principal settlor met the earlier criteria.

Tax payment deferral for Employee Share Schemes

The bill also introduces an Employee Share Schemes (ESS) tax deferral regime to address valuation and liquidity issues for employees of unlisted companies who receive shares or share options as part of an ESS. This regime allows unlisted companies to defer the tax liability for employees until the shares can be more easily valued and sold. The share scheme taxing date would be deferred to the date of the earliest “liquidity event,” such as the listing of the company, sale or cancellation of the shares, or payment of a dividend. 

New GST rules for unincorporated joint ventures

Under current rules, unincorporated joint ventures must register and account for GST when the joint venture is expected to meet the GST registration threshold (taxable supplies of more than $60,000 in a 12-month period). However, in several industries, unincorporated joint ventures are used with members individually accounting for supplies made or received in their own GST returns. This approach is technically incorrect under current legislation.

This Bill would introduce “flow-through” treatment for joint ventures for GST purposes. This would automatically apply to “output-sharing” ventures (that is joint ventures where the members individually supply the outputs from the venture rather than making joint supplies) and would be available to other joint ventures by election.

Under this approach, members of the venture would be able to individually account for taxable supplies made or received in the course of the venture in their own GST returns rather than needing separate registration. All members of the flow-through joint venture would need to register for GST if the venture would itself meet the GST registration threshold.

This approach would be available from 1 April 2026, with retrospective legislation validating previous tax positions taken.

Household electricity generation income to become tax exempt

Thanks to a steady decrease in the cost of doing so, it has become increasingly popular for households to install their own means of electricity generation (such as rooftop solar panels) and benefit from being able to sell power back to the grid.

Technically, this gives rise to taxable income, with a deduction being available for the costs incurred (for instance, depreciation on the solar panels and interest on any funds borrowed to install them). Because of the mixed private- and income-earning nature of the electricity generated, this can give rise to horrific compliance costs for taxpayers who otherwise have minimal income tax obligations – and would give rise to little income for the government.

The Bill would simplify tax compliance via an income tax exemption for income derived by an individual from the residential supply of excess electricity.

Bill commentary indicates that the individual would need to be named on the electricity bill. This would mean the exemption would not apply in instances where, say, a family trust was the named party on the electricity bill. 

Farewell to Parker’s Amendment

Section 17GB of the Tax Administration Act 1994 was enacted in December 2020 to clarify that the Commissioner’s information-gathering powers included being able to require persons to provide information solely for purposes relating to tax policy development. This was viewed cynically by some, especially after the section was used to gather information for the high-wealth-individuals research project in 2023.

The government has become concerned that the section provides Inland Revenue with too much information gathering ability and that there is risk of scope creep, especially given the potential for international tax authorities to request information only intended to be collected for tax policy purposes. If enacted, the Bill would see the repeal of this section.

While Inland Revenue would no longer have powers under this section, its existing information collection powers would remain unchanged. In addition, other government departments such as Statistics New Zealand have statutory information collection powers.

Other proposed changes in the bill

• Gift cards that employers give employees to redeem at most retailers (open loop cards) would be subject to FBT instead of PAYE. This would bring the rules in line with how most employers have been treating the provision of such cards to employees.
• There had been some confusion about the interaction between Investment Boost and the $1,000 low-value asset threshold. The Bill would clear this up by ensuring that the low-value asset threshold looks at the original cost price of an asset.
• Investment Boost gave rise to an FBT opportunity for motor vehicles due to the way FBT on motor vehicles can be calculated. This opportunity would be closed to all vehicles from 1 April 2026, with Investment Boost disregarded in the relevant calculation.
• The eligibility threshold for being a “cash basis person” under the financial arrangements (FA) rules would be increased effective from the start of the 2026/27 income year. Most thresholds would be doubled (apart from the deferral threshold, which would increase from $40,000 to $100,000). This would reflect inflation in the period since the thresholds were last adjusted in 1999.
• Currently, rates such as use of money interest (UOMI) rates, FBT prescribed rates and deemed rate of return rates must be set by Order in Council. The Bill proposes to shift these powers to the Commissioner of Inland Revenue by determination. This would enact the long-term convention for these rates to be set with reference to market indicators such as the 90-day bank bill rate and first mortgage rates.

Active Investor Plus visa holders will be able to purchase high-value homes in New Zealand

Separate to the bill, the government has announced changes to the overseas investment rules, meaning holders of Active Investor Plus visas or the legacy Investor 1 & 2 visas will be able to buy or build a home in New Zealand. 

These visa holders will be limited to a single home worth more than $5 million. There are around 10,000 such homes in New Zealand, with the majority in Auckland and Queenstown, representing around 0.005% of New Zealand’s total housing stock.

There will be no special tax imposed on these purchases, unlike what had been proposed at the last election.

Since 1 April, there have been more than 300 applications for the Active Investor Plus visa, and given the high thresholds (either $5 million of higher-risk investments in New Zealand over three years or $10 million of lower-risk investments in New Zealand over five years) it would be our expectation that the number of applicants would only number in the hundreds in any given year.  Many of these applicants are from the United States.

People who hold Active Investor Plus visas and are considering purchasing a home in New Zealand should obtain tax advice, as the purchase of a New Zealand home can trigger New Zealand tax residency under the “permanent place of abode” rules – and therefore trigger the start of the four-year transitional residency period. Given Active Investor Plus visa holders are high-net-worth individuals, it is important to get it right from the start as fixing any errors later could come with considerable cost.

Our comment on the bill proposals

While we are naturally disappointed that FBT reform seems to have been delayed, this appears to be the result of the complexity of the task at hand and the need to get any law change right – we would rather wait another year for FBT reform than see rushed legislation riddled with issues that need further amendment later.

The amendments for visitors are practical and would purportedly cost the government a mere $200,000 in foregone annual revenue, but would make New Zealand a far more attractive destination for digital nomads. In addition, the ability for visitors to remain non-resident would give them the ability to sample the New Zealand lifestyle and then decide later on in life to permanently move to New Zealand and still retain access to the four-year transitional residency exemption.

The new ESS share scheme tax deferral regime is a helpful change that would remove significant uncertainty regarding valuations and how to fund any tax bill, although with a trade-off that the full benefit from the scheme is taxable, rather than part potentially being a capital gain.

The new FIF calculation method is welcome, especially for those with taxation obligations in the United States, but it is unfortunate that it was not given broader potential application as the revenue account method would help simplify compliance obligations for all taxpayers. Its narrow application risks giving rise to errors, especially where taxpayers change advisors.

The Bill has not yet had its first reading, and Parliament will not be sitting again until next week. We expect submissions will be open soon after. If you would like to submit on the Bill, or discuss some of the proposals outlined, please contact your Baker Tilly Staples Rodway advisor.