Tax Bill: Key Proposed Changes and Implications

The latest tax bill - the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Bill (the Bill) was introduced to parliament on 26 August 2025. Dubbed the ‘compliance simplification’ bill in its title, the Bill notably does not include the significant simplification of fringe benefits tax (FBT) measures proposed earlier in the year and signalled as part of Budget 2025.

What is included in the Bill is a suite of migrant friendly amendments which would make it easier and remove some of the tax barriers for individuals to visit and migrate to New Zealand. The Bill also includes proposals that aim to ease the burden of employee share schemes which New Zealand companies may utilise to attract skilled workers from overseas.

While we are pleased to see the continued focus on simplifying compliance and the desire to remove tax barriers that may be preventing skilled migrants from coming to New Zealand, and thereby limiting the opportunity for further economic growth, it is important for the Government to continue its work in this area. In particular, in the absence of more substantive reforms, FBT will continue to be a compliance-heavy tax.  It would be disappointing to see the work done to date not progressed further, noting that some refinement may be required to ensure it operates well and it is well understood.

We also recognise the proposed deferral scheme for eligible employee share schemes will alleviate some of the issues faced by New Zealand companies, however we consider the changes would need to go further to make New Zealand more competitive in attracting overseas talent. More surprising however are the additional employee share scheme proposals introduced in the Bill which we consider will result in more complexity for taxpayers.

We provide further details on the key proposed changes below.

Non-Resident Visitors

The Bill proposes an overhaul of the tax treatment of visitors to New Zealand, specifically around the relatively modern phenomenon of ‘digital nomads’. Digital nomads are essentially remote workers who work while travelling to foreign jurisdictions. The rise of these ‘digital nomads’ creates some complexities for tax compliance with many of the existing tax rules being based on a much less mobile workforce. Naturally such arrangements have raised questions around income source, residence, and permanent establishment risks which the Bill aims to clear up in a series of amendments.

Non-resident visitor definition

The amendments in the Bill would introduce a definition for a “non-resident visitor”, which would be specifically exempt from the 183-day rule. A non-resident visitor would be a natural person who:

• is in New Zealand for 275 days or fewer over an 18-month period,
• was not a New Zealand resident / transitional resident immediately before becoming a non-resident visitor,
• is not receiving a family scheme entitlement (nor is their partner),
• is lawfully present in New Zealand under the Immigration Act 2009, and
• is tax resident in a jurisdiction with a tax substantially similar to New Zealand’s income tax.

It is also required that the person’s work is not:

• performed in New Zealand for a New Zealand resident or branch; or
• offering goods or services in New Zealand for income from persons or businesses in New Zealand; or
• required to be done while physically present in New Zealand.

Services income

The proposed amendments also include specific income tax exemptions for services income earned by a ‘non-resident visitor’. Generally, the following income would be exempt from New Zealand income tax:

• personal or professional services income earned by a non-resident visitor;
• income earned by a non-resident business or self-employed person which has a New Zealand-source due to a non-resident visitor.

Similarly, exempt income of the ‘non-resident visitor’ would also be excluded from the schedular payment rules, fringe benefits tax, and employer superannuation contribution tax.

Offshore entities

The proposal also includes amendments to disregard the activities of the ‘non-resident visitor’ when considering the tax residency of a foreign company, in particular, disregarding the decisions undertaken by the non-resident visitor when applying the centre of management and director control rules. This is limited to foreign companies which are tax resident in jurisdictions which impose a substantially similar tax to New Zealand’s income tax.

PwC view

These proposed amendments are a welcome revamp of the currently outdated tax rules which do not work well with a highly mobile global workforce. We expect these proposed changes will ease the compliance burden for non-resident employers and non-resident individuals who wish to work and travel more flexibly.

Revenue account method

Following Inland Revenue’s public consultation earlier this year (refer to our May Tax Tips), the Government has introduced a new FIF income method, the revenue account method (RAM).  This method is aimed at easing tax barriers for new migrants and returning New Zealanders who hold unlisted offshore shares by taxing realised gains instead of being taxed on an amount of deemed income as the rules currently operate generally. This is a significant shift in the taxation of investments held by individuals in foreign companies and is targeted at attracting foreign capital and skilled migrants, amidst concerns that the current settings were discouraging non-residents from coming to and staying in New Zealand.

Under the RAM, instead of being taxed on notional returns, eligible taxpayers will be taxed on dividends received and 70% of any realised gain on disposal of qualifying foreign shares (described as a 30% discount). Similarly, 70% of a loss on disposal is able to offset future RAM gains. To support integrity, losses cannot be offset against dividend income, but they can be carried forward. The method is limited to shares in foreign companies acquired before becoming a New Zealand tax resident (or under arrangements entered into before then), and generally excludes listed shares and most managed funds. Eligible taxpayers will need to elect to apply the RAM. 

It is important to note that should the individual cease to be a New Zealand tax resident in the future, they remain taxable on the FIF interest if they are sold within three years of becoming non-resident.

RAM taxpayers

There are eligibility requirements taxpayers must meet to apply the RAM. A RAM taxpayer is defined as a natural person who becomes a New Zealand tax resident on or after 1 April 2024, provided they were non-resident for at least five years before becoming a New Zealand tax resident. RAM may also apply to family trusts where the principal settlor meets the same criteria.  

An ‘extended RAM’ is also available to people who remain subject to citizenship-based taxation overseas (such as US citizens), allowing them to apply the rules to a wider range of foreign shares.

PwC view

At its current state, the proposed RAM method offers modest relief for eligible taxpayers.  In practice, it largely functions to defer the tax impost on certain foreign investments until cash is available through dividends or disposal.

In some cases, the revenue account method may result in higher tax outcomes than existing FIF methods, as gains would be taxed at the taxpayer’s full marginal rate (up to 39%). This contrasts with many foreign jurisdictions where capital gains are taxed at lower rates, which may make the regime comparatively less favourable.

Employee Share Schemes

The Bill proposes a number of changes to the employee share scheme (ESS) tax regime, some expected, based on announcements at the time of the Budget, and some new.  We have outlined these below.

Employee deferred shares

As previously announced, the Bill includes proposed changes which would allow unlisted companies to elect to defer the taxing point in relation to shares offered to its employees under an ESS. In summary, if shares offered under an ESS are “designated” by the employer as “employee deferred shares”, the taxing point of the arrangement would be deferred until a “liquidity event” in relation to the shares - being when the company lists on the stock exchange, the shares are sold or cancelled, or the company pays a dividend on those shares (but not if dividends are paid on other shares). To qualify for a deferral, the shares must be designated as “employee deferred shares” and notifications must be made to both the Commissioner and the employee.

This proposed new regime is aimed at addressing the valuation and liquidity issues which can be an impediment to the use of an ESS by unlisted companies, by deferring the taxing point in relation to the shares to the point in time when there is “liquidity” in relation to shares. In theory at that point in time there should be an event which informs the taxable value of the shares (alleviating the requirement for a valuation - however this will still be required where the liquidity event arises because of a dividend being paid on the shares) and available cash to fund the resulting tax (from the realised sales proceeds or the dividend).

PwC view

While we welcome the simplicity of the approach, we feel that the deferral regime is a limited solution to the difficulties taxpayers face in relation to ESS, and will provide very limited benefit to employers trying to attract overseas talent by offering an ESS.  

The same outcomes can be achieved under the current ESS rules via long tailed options. While some companies may consider shares issued under this regime preferable to a long tailed option, the absence of tax concessions in our ESS rules (besides the very limited exempt ESS) continues to be a disappointing point of difference between the New Zealand ESS regime, and regimes in countries like Australia, Canada the United Kingdom, and the United States, with which we compete for talent.  

There are also quirks in the proposed regime which are difficult to reconcile with the intended outcomes (e.g. classifying a dividend as a liquidity event, and then imposing tax on both the pre-dividend value of the share - the cum dividend value - and the dividend itself). We question the logic of crystallising a tax liability in relation to shares based on the payment of a dividend at all, and of the subsequent apparent duplication of tax in relation to the dividend itself.

Change of taxing point

A surprising inclusion in the Bill which has not been signalled to date will, if adopted, result in a wholesale change to our ESS regime and the taxing point of many ESSs.  Under a proposed amendment to the definition of “share scheme taxing date”, shares will become taxable at the earlier of the current clear tax triggers (delivery of the shares or beneficial ownership of the shares) and the point when the employee “has an unconditional right to presently receive shares”.

This would shift our ESS regime from the current rules based on transfer of beneficial ownership, to one based on the earlier of transfer of beneficial ownership or the vesting date of the shares (the latter being a significantly less clear concept which varies from scheme to scheme). There is no current definition or indication of the boundaries to the term “unconditional right to presently receive shares” contained in the Bill.

PwC view

Although positioned by Inland Revenue Policy as “clarifying” the current law, the proposed amendment appears to be codifying the approach taken in two Technical Decision Summaries released by the Commissioner in 2024, which caused considerable confusion in the market given the challenges of reconciling both decisions with the current ESS rules based on the disclosed facts.

While the stated intent of the amendment is to remove the risk of arbitrary taxing points where there is a delay in issuing vested shares to employees, in our view the change:

• represents a fundamental unwarranted change in rules which to date have been clear and sound from a policy perspective;

• has the potential to result in employees being subject to tax on shares that they have not received (particularly where there is a significant delay in issuing the shares, but even if the delay is much shorter); and

• will, in the absence of further detailed clarification of the boundaries of the proposed new wording, result in considerable confusion and uncertainty as to the taxing point under many ESSs. This is of real concern as taxpayers will struggle to understand the correct taxing point.

Change to timing of employer deduction

Another inclusion in the Bill which has not been signalled to date would result in a mismatch between the timing of the employee income under an ESS, and the employer tax deduction. Under the proposed amendment the employer deduction will arise on the share scheme taxing date, and not the ESS deferral date (20 days after the share scheme taxing date when current employees are deemed to derive the resulting income).

PwC view 

The current ESS rules have little explicit clarity as to whether the employer’s deduction arises on the share scheme taxing date or the ESS deferral date. The view by practitioners has been, based on the principle of symmetrical treatment for employer and employee, that the employer deduction arises on the same date as the date that the income is derived by the employee. This was the position taken by the Commissioner in the publication QB 21/04, released in 2021.

We welcome legislative clarification of a point which has been subject to uncertainty, however we question the rationale for a legislative reversal of a principle which to date has been affirmed by the Commissioner, and which appears to run counter to the principle of symmetry underpinning the current ESS rules. No explanation or reasoning is provided in the commentary accompanying the Bill as to the policy issue the amendment seeks to address.  

FBT

The most significant of the proposed FBT changes outlined in the Fringe benefit tax – options for change Issues Paper released on 1 April 2025 (and covered in our April Tax Tips) have not been included in the Bill. It remains to be seen the extent to which these changes may be introduced in the future, but for now we have summarised below the changes that were included in the Tax Bill.

Gift cards

All gift cards will now be within the ambit of FBT, which clarifies some confusion around “open loop cards” (e.g. prezzy cards) which can be used at any retailer which are  technically in the PAYE regime currently. It is also proposed that gift cards will become a ‘classified benefit’, which will result in the de minimis exemption no longer applying to these benefits. These changes are backdated and effective from 16 April 2025.

Reimbursements for benefits

Where an employer reimburses an employee for an amount of expenditure that an employee has incurred for a benefit that would have been an unclassified benefit if the employer provided it directly, the employer has the choice of applying the FBT regime and treating it as an unclassified benefit. For completeness, this proposal will not apply for reimbursement of a classified benefit (e.g. insurance).

Attribution of global insurance policies

For insurance policies that cover all employees for the same or similar entitlement, the proposed amendments means that these can be either attributed by dividing the total contribution by the number of employees or pooled.  

Other amendments

Other more remedial amendments include:

• amendment to the full alternate rate calculation formula;

• clarification that the cost price of a motor vehicle is not adjusted for any Investment Boost claim;

• Confirmation that unclassified benefits provided to associates are included in the de minimis calculation;

• confirmation that the value of a gift card benefit is the amount loaded on the card i.e. excluding any administration or other fees.

PwC view

We consider the absence of the key changes consulted on and proposed in the issues paper will be fairly discouraging for some taxpayers. Many employers have been eagerly anticipating reduced FBT compliance costs and a realignment to a focus on capturing benefits that are a substitution for cash remuneration. We remain hopeful and supportive that the wider proposed FBT reform progresses in the near future which achieves these outcomes.

Other items

The Bill also includes a large number of remedials and other amendments which we have not discussed in detail. We outline below some of the other key proposed amendments.

• GST and unincorporated joint ventures

  • The Bill includes an amendment to the GST Act which would allow members of a joint venture to choose to individually account for GST via their independent GST registrations on a flow-through basis rather than having to register the joint venture.

• Income from residential supply of electricity

  • The Bill introduces a specific income tax exemption for income derived from selling excess electricity back to electricity retailers.

• Information sharing

  • The Bill provides an amendment which would allow the Commissioner of Inland Revenue to share information with other government agencies for a defined purpose by way of Ministerial agreement.

• Repeal of legislative provisions for trust disclosures

  • This amendment would repeal the legislative provisions around trust disclosures, however the commentary to the Bill notes that the Commissioner will consider what information will continue to be collected by way of his general powers.

• Increase to cash basis persons threshold
  • The cash basis persons thresholds will be increased along the lines of the table below.
  • This is a significant shift, attributable to the fact that these boundaries have not been adjusted since 1999.

• Investment Boost remedials: 

  • Proposed amendments to the rules to clarify how the investment boost intends to operate and to fix some drafting issues. Remedials are expected given that the Investment Boost was passed in haste during the budget which did not allow any public input into the drafting of the legislation. Importantly, the amendments clarify that subsequent purchasers of buildings held for sale as trading stock by the original owner/developer, can qualify for the Investment Boost.  

• Repealing section 17GB of the TAA (Commissioner's power to request information for tax policy development).  

  • This information gathering power was explored in-depth in the November 2021 Tax Tips. Readers will recall that this power was used by Inland Revenue to collect information for the high-wealth individuals research project which explored how much tax is paid by high-net-worth families in New Zealand. While we appreciate the need for sound data when making tax policy decisions, we had concerns as to the lack of consultation and the process by which this section was initially enacted.  

• Non-resident contractors’ tax on software as a service arrangements: 

  • The Bill clarifies that software as a service (SaaS) arrangements are not subject to non-resident contractors’ tax (NRCT). This is a useful clarification to align with the legislative intent of the NRCT regime in that it is intended to capture payments for the use of physical infrastructure or personnel located in New Zealand.