The current tax Bill before the House has been reported back to Parliament by the Finance and Expenditure Committee ("FEC"), with some important changes to the Bill as it was introduced to the House. In prior updates, we provided an overview of our submissions on the Bill and on its key changes to the taxation of employee share plans. In this update, we outline what has changed in the Bill and what is on the horizon for taxpayers.
The Bill's key proposals
As introduced, the Bill contained a range of measures aimed at improving New Zealand's tax settings, with a particular focus on simplifying compliance and ensuring that New Zealand remains an attractive destination for investment, skilled migrants and returning New Zealanders.
While we broadly supported the proposals in the Bill, our submissions and recommendations looked to improve certainty, reduce compliance costs and ensure the rules operate cohesively alongside existing tax legislation.
The key proposals in the Bill as it was introduced include:
- Employee share and option plans: The Bill proposes changes to ease tax burdens for employees participating in workplace share or option plans. Unlisted companies would be able to elect for tax to be paid at the time of certain "liquidity events", rather than when employees receive shares.
- New "non-resident visitor" regime: The Bill introduces new rules to ease the tax consequences for "digital nomads" who engage in remote work while visiting New Zealand.
- New FIF calculation method: The Bill proposes a new realisation-based calculation method for determining FIF income, available to individuals who migrate to New Zealand or return after a five-or-more year absence. This is intended to reduce the compliance costs and cash flow difficulties that the current FIF rules can create.
- GST and joint ventures: The Bill proposes amendments to the GST treatment of unincorporated joint ventures.
Key changes to the Bill following the FEC process
The FEC has reported back on the Bill with substantive amendments. Several changes respond directly to issues raised in Russell McVeagh's submissions, and in our view the Bill as a whole has been made more favourable to taxpayers who may be affected by these proposals. The key changes are summarised below.
Employee share and option plans
The FEC has narrowed the scope of the elective deferral regime so that it applies only to genuine liquidity events, addressing concerns that the rules (as introduced) could give rise to a taxation liability without corresponding liquidity.
In particular, the FEC accepted our submission that the proposed definition of “liquidity event” could trigger tax obligations in situations where no income has been received by the employee. The payment of dividends has therefore been removed from the events that could cause a liquidity event. Now, only certain share sales and transfers, including listing the relevant company on a stock exchange, will trigger the liquidity event.
The FEC has also clarified that deferral can apply differently to employees within a single share or option issuance.
Non‑resident visitors
The FEC has addressed a number of concerns with the design of the non‑resident visitor regime. These amendments apply to visits commencing on or after 1 April 2026.
Eligibility criteria have been simplified by:
- removing the “substantially the same as income tax” requirement when determining whether a visitor is liable for tax in their home jurisdiction; and
- recognising taxation based on citizenship where relevant (for example, for US citizens).
In addition, income source and corporate residence rules have also been aligned so that a visitor’s activities are disregarded for New Zealand income source assessments (including the head office test), more closely aligning domestic outcomes with treaty principles.
The FEC accepted our submissions on all of these points, which we consider better aligns the legislation with its intended objectives.
New FIF calculation method
The FEC has refined the proposed realisation-basis method (the "revenue account method" or "RAM") to address concerns about its scope and consistency in application. Key changes include:
- rollover relief for corporate reorganisations where economic ownership does not change;
- extended eligibility for individuals who become New Zealand tax resident under a treaty tiebreaker after at least five continuous years of non-residence.
GST and joint ventures
The GST joint venture proposals have been simplified. The FEC accepted our submission that the proposed “output-sharing” category would add unnecessary complexity and be inconsistent with the Bill's simplification objectives. This category has been removed.
The default position therefore remains that joint ventures are subject to the existing unincorporated body rules in the GST Act, with an elective flow‑through regime available where appropriate. Transitional rules allow existing joint ventures until 1 April 2027 to elect into the regime, with backdating available to 1 April 2026.
Other developments
- Investment Boost: Amendments clarify that improvements to existing assets are eligible for Investment Boost. Consequential changes have also been made to align the FBT treatment of vehicles on which an Investment Boost deduction is claimed.
- FBT: The Bill introduces flexibility to treat certain employee reimbursements as either employment income or unclassified benefits. It also refines the treatment of gift cards and provides further clarification regarding the scope of the health and safety exemption.
On the horizon
Parliament is expected to enact the Bill before 1 April 2026, with the majority of substantive amendments applying as of that date.
We note that the Minister of Revenue has indicated his intention to release an amendment paper prior to the Bill being passed. We are therefore anticipating further amendments to the Bill, such as updates for infrastructure-related changes to the thin capitalisation rules.
If you have any questions about the Bill, or how the proposed amendments may affect you or your business, please reach out to one of our experts or your regular Russell McVeagh contact.