A Bumper Bill advances Budget 2026 reforms, and more

The Taxation (Annual Rates for 2026–27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill, contains a broad package of tax policy and remedial changes, including many measures announced as part of Budget 2026. Overall, the reforms affecting employers, businesses and individuals should simplify compliance processes, reducing costs over time.

Overview of the Bill in brief

For businesses, the Bill introduces:

a new category approach to taxing motor vehicle benefits which should reduce compliance costs in time but may increase tax payable for some employers;
compliance simplifications for the non-resident contractors and approved issuer levy regimes;
Research and Development Tax Incentive changes providing welcome simplifications and cashflow support, but also introducing new considerations for software investment; and
a collection of helpful GST and income tax remedial amendments including clarifications on the treatment of certain software costs.

Employers should pay particular attention to the FBT motor vehicle reforms, which will require changes to compliance processes and vehicle policies and may affect the amount of tax payable. Refer to our earlier Taxmail on FBT for motor vehicles.

For individuals, the Bill introduces a host of welcome reforms including:

expanding realisation-based tax treatment for certain financial arrangements and foreign investments providing cash-flow relief to New Zealand investors as well as migrants; and
some much-needed compliance simplifications, particularly for migrants and taxpayers exposed to double taxation.

Sector Specific

The Bill also proposes sector-specific changes affecting charities and not-for-profits, Māori authorities, foreign-owned banking groups and investors holding cryptoassets. Finally, the Bill progresses a substantial package of remedial amendments including changes to the Investment Boost rules, resident withholding tax obligations and Pillar 2 filing requirements, rounding out what is a bumper Tax Bill.

Overall, the Bill contains several measures that should improve cashflow, reduce compliance costs and complexity.

KPMG’s observations

The higher Foreign Investment Fund (FIF) de minimis and targeted financial-arrangement exclusions represent meaningful progress and will be welcome news to Kiwi investors and migrants alike, although further work may be needed to improve coherence across both regimes.

Given the length of time in development employers will be pleased to see the shape of the FBT motor vehicle proposals. The implementation timetable may be challenging for some and will require early preparation, but we expect the reforms to reduce compliance costs in time.

For recipients of the Research and Development Tax Incentive, the in-year payments and greater administrative flexibility are constructive changes. However, reducing the internal software expenditure cap from $25 million to $3 million may have wider effects than intended as R&D becomes increasingly software-enabled.

As New Zealand seeks to improve productivity through greater adoption of technology and AI, it is important that the incentive continues to provide confidence for businesses investing in innovation. We look forward to engaging further with Officials to explore whether the measure could be better targeted, achieving the desired changes whilst continuing to support the wider growth and productivity objectives.

What is next

The Bill has been referred to the Finance and Expenditure Select Committee for public submissions. The upcoming 2026 General Election adds some extra steps to the legislative process as the Bill will lapse and need to be reinstated by the next Government. While we expect many of the reforms to have cross-party support, the possibility of further change to the proposals remains.

Our Taxmail summarises the key changes proposed.

Overview of proposals in detail

What is changing?

The Bill proposes replacing the current day-count approach and work-related vehicle exemption with a category-based regime that reflects the degree of permitted private use.

Proposed benefit inclusion rates range from:

100% for perk vehicles
35% and 25% for vehicles with a mix of private and business use
0% for qualifying business-only pool vehicles or vehicles used to travel to multiple work sites (a tool of trade vehicle).

Many of the vehicle categories apply only to branded vehicles, but the Bill will not result in a need to brand existing fleets as the new branding requirements apply prospectively to new vehicles acquired after 10 September 2026.

The Bill also proposes to differentiate valuation rates for petrol, hybrid and electric vehicles.

Key considerations:

The reforms will affect employers differently depending on their vehicle fleets, with some potentially paying more FBT, while others may pay less than under the current rules.
Over time, the category-based approach should reduce reliance on detailed day-counting. However, employers will still need robust vehicle classifications and supporting policies.
With a proposed application date of 1 April 2027, early implementation preparation will be important. Employers should map vehicle fleets and usage policies to assess the likely impact.
New vehicle branding requirements will make a material difference to tax outcomes and should be considered for any new vehicle acquisitions/leases.

What is changing?

The Bill proposes to:

increase the NRCT exemption threshold from $15,000 to $75,000 per annum;
move the NRCT regime to a single-payer approach meaning that payers would no longer be required to investigate a contractor’s other New Zealand activities when applying the threshold or day-count tests; and
exclude certain compliant, low-risk entities should further reduce compliance costs.

Key considerations:

We expect the measures to reduce compliance costs faced by businesses that require overseas personnel or equipment for New Zealand projects.
Teams responsible for monitoring NRCT compliance should note the new threshold and new single-payer approach to be taken.

What is changing?

The Bill proposes introducing in-year payments for eligible businesses providing earlier access to the credit and supporting cashflow.

The amount available would be capped at the lower of:

15% of eligible R&D expenditure incurred;
the amount of labour-related taxes reported by the business during the income year; and
80% of the person’s expected R&D tax credits for the year.

The Bill also proposes:

broadening the qualifying mining R&D expenditure;
reducing the cap on eligible internal software development expenditure from $25 million to $3 million; and
providing the Commissioner of Inland Revenue with greater administrative discretion to accept late filings and correct administrative errors.

Key considerations:

To assess eligibility for the in-year credit to support cashflow, business will need to complete additional documentation and forecasts to seek the Commissioner’s approval based on their estimated expected R&D credits.
Early payments are not without risk as any excess paid during the year would attract use-of-money interest (currently 8.97%), underscoring the need for robust forecasts.
The proposed $3 million cap is likely to affect many larger businesses investing in software and emphasises the importance of distinguishing capped internal software expenditure from other eligible costs.
Mining-sector businesses should explore the extended eligibility.

What is changing?

The Bill proposes several changes to the FIF rules, including:

increasing the FIF de minimis from $50,000 to $100,000;
broadening access to both the realisation-based Revenue Account Method and attributable FIF income method; and
introducing a range of other remedial changes intended to simplify compliance.

Key considerations:

Once enacted, the higher de minimis reduces the need for eligible investors holding $100,000 or less of foreign investments to contend with the complex FIF regime from 1 April 2026
New Zealand investors will now be able to access the revenue account method for unlisted shares, which should provide cash-flow relief.
While the proposals make sensible progress on addressing the double tax risks in particular for US residents subject to New Zealand FIF tax, there is more work to be done. We expect submissions to draw out areas that require further reform to ensure New Zealand’s FIF settings do not discourage would-be migrants and investors.

What is changing?

The Bill limits taxation of certain unrealised foreign-exchange movements. It provides targeted double-tax relief and removes specified low-risk foreign-currency arrangements from the rules.

Key considerations:

The proposed changes are expected to lower compliance costs for impacted taxpayers.
The exclusion of arrangements with a private nature, including personal credit cards and residential properties with foreign mortgages, will materially reduce complexity for taxpayers subject to these rules.

What is changing?

The Bill includes a broad package of remedial amendments aimed at improving clarity and flexibility, including changes to:

allow 39% resident withholding tax on dividends;
treat cryptoassets lending transactions as loans rather than disposals;
simplify the Approved Issuer Levy (AIL) regime to reduce compliance costs, including increasing the reduced-filing threshold to $10,000;
clarify the deductibility of software development costs for abandoned projects,
ensure that software-as-a-service and other ordinary and non-exclusive software licensing arrangements are excluded from the finance lease rules; and
introduce several international tax remedial amendments to simplify the Pillar 2 filing and compliance requirements and allow taxpayers to align transitional and DTA residence.

Key considerations:

The application of these changes is subject to additional criteria and various application dates. Businesses and individuals keen to apply the proposed rules should seek additional advice.

What is changing?

The Bill proposes several changes affecting charitable donations and not-for-profit entities, including:

introducing a “paid in cash” requirement for gifts made from private trusts;
enabling earlier processing of donation tax credits;
allowing taxpayers to re-gift their credit to a nominated charity;
increasing the effective tax exemption available to not-for-profit organisations to $10,000;
reducing filing obligations for not-for-profits; and
confirming the tax-free treatment of subscription fees and levies.

Key considerations:

From 1 April 2027, Trustees making donations made from private trusts to tax-exempt beneficiaries will need to ensure these are paid in cash within the relevant timeframe, generally six months after year end.
In-period donation tax credits may improve cashflow, but their availability will be capped by the claimant’s reportable income, limiting the utility of the proposal for those who do not have regularly reported income.
We note that these changes follow the previously enacted $100,000 cap on donations eligible for the credit from 1 April 2027.