Tax Policy Bulletin

Parliament enacts Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026

The Finance and Expenditure Committee has examined the Taxation (Annual Rates for 2025-26, Compliance Simplification, and Remedial Measures) Bill (the Bill), first introduced in August 2025, had its second reading on the 24th of March, and is now accompanied by a pair of Amendment Papers including some additional proposals. The Bill was enacted last night, as the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026.

The key policy proposals within the Bill (setting the annual rates for the 2025-26 tax year, provisions for the tax treatment of non-resident visitors, the new revenue account method for calculating foreign investment fund income, and various other provisions) were outlined in our September Tax Tips.

The latest Amendment Papers have included further proposals including thin capitalisation reforms for infrastructure telegraphed in the budget back in May, reforms around interest relief on student loans for foreign borrowers, an expanded timeline for using tax pooling to settle debt for the 2023 and 2024 income years, incorporation of Pillar 2 rules, a temporary increase in the base rate of the in-work tax credit and others. You can read more about this in our latest Tax Tips.

Other recent announcement

• Shortfall penalties – Inland Revenue has released a series of Interpretation Statements and accompanying Fact Sheets with regards to the application of shortfall penalties in a number of circumstances, summarised below:

  • IS 26/03 Shortfall penalties – requirements for a “tax position” and a “tax shortfall”. This interpretation statement explains the “tax position” and “tax shortfall” requirements common to the shortfall penalties in ss 141A to 141E of the Tax Administration Act 1994 (TAA). Accompanied by IS 26/03 FS 1

  • IS 26/04 Shortfall penalty for not taking reasonable care. This interpretation statement explains the meaning of “reasonable care” in relation to the shortfall penalty for not taking reasonable care in s 141A of the Tax Administration Act 1994. Accompanied by IS 26/04 FS 1

  • IS 26/05 Shortfall penalty for taking an unacceptable tax position. This interpretation statement explains the meaning of “unacceptable tax position” in relation to the shortfall penalty for taking an unacceptable tax position in s 141B of the Tax Administration Act 1994. Accompanied by IS 26/05 FS 1

  • IS 26/06 Shortfall penalty for gross carelessness. This interpretation statement explains the meaning of gross carelessness in s 141C of the Tax Administration Act 1994.  It discusses the circumstances that could be relevant in determining whether someone has been grossly careless and how to distinguish gross carelessness from lower levels of negligence.  It also discusses relevant case law and provides several practical examples for clarity. Accompanied by IS 26/06 FS 1 

  • IS 26/07 Shortfall penalty for taking an abusive tax position. This interpretation statement (IS) explains the meaning of “abusive tax position” in relation to the abusive tax position shortfall penalty.  The IS also discusses relevant case law and provides several practical examples for clarity. There is separate guidance on the shortfall penalties provided in s 141A, 141B, 141C and s 141E of the Tax Administration Act 1994, the threshold requirements for a shortfall penalty (that there be a “tax position” and a “tax shortfall”) and reductions and other matters that may be relevant when a  shortfall penalty is imposed (Related Publications). Accompanied by IS 26/07 FS 1

  • IS 26/08 Shortfall penalty for evasion or a similar act. This interpretation statement (IS) explains the shortfall penalty for evasion or a similar act in s 141E of the Tax Administration Act 1994 (TAA).  The IS explains what is required to satisfy the knowledge requirement, and other requirements, for evasion or a similar act.  The IS also discusses relevant case law and provides several practical examples for clarity. It updates and replaces IS0062 for subsequent case law. There is separate guidance on the shortfall penalties provided in s 141A, 141B, 141C and s 141D of the TAA, the threshold requirements for a shortfall penalty (that there be a “tax position” and a “tax shortfall”) and reductions and other matters that may be relevant when a shortfall penalty is imposed (Related Publications). Accompanied by IS 26/08 FS 1

  • IS 26/09 Shortfall penalties – reductions and other matters. This interpretation statement is relevant where the Commissioner imposes a shortfall penalty for not taking reasonable care (s 141A), an unacceptable tax position (s 141B), gross carelessness (s 141C), an abusive tax position (s 141D), or evasion or similar act (s 141E).  It discusses when a shortfall penalty is reduced (or increased), what happens when a taxpayer could be liable for more than one penalty and the assessment, payment and disputing of shortfall penalties. There is separate guidance on the threshold requirements for a shortfall penalty (that there be a “tax position” and a “tax shortfall”) and the shortfall penalties provided in s 141A, 141B, 141C, 141D and s 141E of the Tax Administration Act 1994. Accompanied by IS 26/09 FS 1.

• IS 26/02 GST treatment of supplies of payment processing or facilitation services to merchants. This interpretation statement applies to entities that provide payment processing or facilitation services, including payment technology, to merchants. These entities include payment service providers (PSPs), buy now, pay later (BNPL) providers and other suppliers of payment technology or infrastructure.

  The statement provides a framework to determine whether services provided to merchants are financial services. When the supply to merchants includes settlement services, there will be a supply of financial services, and these supplies will be GST exempt (or zero-rated if applicable). The statement also explains whether there is a single supply or multiple supplies of services that may have different GST treatments. Published 24 March 2026.

• RA 26/01 Failure to pay PAYE deductions to Inland Revenue. The Commissioner is issuing this Revenue Alert to highlight the criminal penalties that may apply where employers do not pass PAYE and other amounts deducted from an employee’s salary or wages to Inland Revenue by the due date.  Making deductions and failing to pay them to Inland Revenue is a serious offence carrying a maximum sentence of up to 5 years in prison.  This Revenue Alert highlights that the Commissioner will consider, where appropriate, the possibility of prosecution action where this behaviour is identified. Published 16 March 2026.

• Inland Revenue's use of artificial intelligence — Information release. This information release includes documents relating to Inland Revenue's use of artificial intelligence (2025). Published 6 March 2026.

• Taxation and the not-for-profit sector — Information release. This information release includes documents relating to Taxation and the not-for-profit sector (2025). Published 4 March 2026.

• IS 26/01 Income tax – deductibility of repairs and maintenance expenditure – general principles. This interpretation statement considers the general principles governing the income tax treatment of expenditure taxpayers incur in carrying out work on tangible property they use in a business or income-earning activity. The interpretation statement was accompanied by a pair of fact sheets containing further information. Published 2 March 2026.

  • IS 26/01 FS 1 Income tax – deductibility of repairs and maintenance expenditure – general principles. This fact sheet accompanies IS 26/01: Income tax – deductibility of repairs and maintenance expenditure – general principles. IS 26/01 explains when you can claim an income tax deduction for repairs and maintenance costs for physical (tangible) property and includes over 20 examples. This fact sheet gives a quick summary of the key points from IS 26/01.

  • IS 26/01 FS 2 Leaky buildings and income tax – deductibility of repairs and maintenance expenditure – general principles. This fact sheet accompanies IS 26/01: Income tax – deductibility of repairs and maintenance expenditure – general principles. IS 26/01 explains when you can claim an income tax deduction for repairs and maintenance costs for physical property and features 27 examples (including two relating to leaky buildings). This fact sheet gives a brief summary of the key points from IS 26/01 that specifically relate to leaky buildings. 

Open consultations

• PUB00508 Income tax – portfolio investment entity income from land development activities –This question we've been asked considers whether income derived from developing land, dividing it into lots and/or erecting buildings on the land for the purpose of sale is eligible income for a portfolio investment entity under s HM 12 of the Income Tax Act 2007.  It concludes that this income is eligible income under s HM 12. Consultation closes 15 April 2026.

• ED0261 Options for relief from tax debt – The standard practice statement sets out the Commissioner’s practice when considering the options of debt relief from the requirement to pay tax, interest and/or penalties under the TAA 1994.  The options available to the Commissioner are to write-off amounts, enter into an instalment arrangement, remit amounts, or a combination of these options.  There are a number of factors outlined in the SPS that the Commissioner will consider when granting relief from tax. This statement updates and replaces 18/04: Options for relief from tax debt. Consultation closes 8 May 2026.

Recently closed consultations

• Income tax treatment of software development expenditure and SaaS customisation and configuration costs Officials are seeking feedback to gain a better understanding of whether the current tax treatment of both software development expenditure and software as a service (SaaS) customisation and configuration costs leads to the correct outcomes. Consultation closed 30 January 2026 (extension provided to 13 February 2026).

• PUB00477 GST treatment of short-stay accommodation – This draft interpretation statement discusses the GST treatment of short-stay accommodation provided by hosts either through an electronic marketplace (such as Airbnb or Bookabach) or directly to guests. The statement approaches GST from the perspective of someone considering providing short-stay accommodation for the first time, and follows the lifecycle of a taxable activity of providing short-stay accommodation from initial registration through to de-registration. Consultation closed 16 February 2026. 

• PUB00516 GST - Court-awarded costs and disbursements – This draft interpretation statement considers whether court-awarded costs and disbursements and out-of-court settlement payments for costs and disbursements are subject to GST. This statement does not consider the GST treatment of court awards and out-of-court settlement payments more generally (eg, payments of damages). Consultation closed 20 February 2026.

• PUB00522 GST financial services – Services supplied in relation to retirement schemes – This interpretation statement considers the GST treatment of services that the manager of a retirement scheme supplies to the scheme and that third-party outsourced providers supply to the manager of a retirement scheme. In both cases the key issue is whether the supplies are exempt supplies of financial services. Consultation closed 27 February 2026. 

• IRRUIP18 Income tax – wrapping, bridging, lending, borrowing and staking cryptoassets –Cryptoassets are increasingly used in peer-to-peer transactions on the blockchain without the involvement of a central party, commonly referred to as decentralised finance (DeFi). This issues paper sets out the Commissioner’s initial views on the income tax consequences arising from common DeFi transactions such as wrapping, bridging, lending, borrowing and staking. The main issue that arises is whether these activities involve disposals of cryptoassets and acquisitions of different cryptoassets for tax purposes. Consultation closed 12 March 2026.

• ED0267 Returns of capital: Off-market share cancellations – bright line tests and the Commissioner’s notice requirements and other matters – This operational statement provides guidance on the tax treatment of off-market share cancellations, focusing on the bright line tests and the Commissioner’s notice requirements under section CD 22 of the Income Tax Act 2007. It explains when payments made on share cancellations are not to be treated as dividends, the process for requesting a Commissioner’s notice, and the implications if a payment is later found to be a dividend. Consultation closed 23 March 2026. 

For more information about upcoming consultations please see here for Tax Technical and here for Tax Policy.