Year in Review 2025

2025 has been the second calendar year of the National-Act-NZ First coalition Government, and the tax developments during the year are consistent with the direction of travel of the current Government policy agenda of “growth”. During 2025, we have seen the ‘Growth Budget’ delivered in May, an ‘economy growing’ Tax Bill introduced to parliament in June, and a growth in compliance activity by Inland Revenue throughout the year. 

This growth agenda has included modifying the tax rules around capital investment and introduction of migrant-friendly reforms. On the capital investment front, the enacted Investment Boost scheme allows more upfront deductions for depreciable property while work continues on thin capitalisation reform for infrastructure projects. Tax changes to help attract skilled migrants or those with significant capital has been a key topic of consultation including employee share scheme (ESS) and foreign investment fund (FIF) reforms. 

In addition to those two key themes, other key tax developments that occurred during the year include potential fringe benefit tax (FBT) reforms, an ongoing trend toward higher tax governance expectations, and the introduction of the Participating Advisor programme.  Overall, it has been another big year for the New Zealand tax landscape.

In this Tax Tips, we revisit the key tax developments that occurred in 2025 and take a look ahead at what could be on the horizon for 2026. 

January onwards - Inland Revenue audit activity ramps up

As consistently indicated by Inland Revenue post-COVID, Inland Revenue has continued to increase their compliance and audit activities during 2025. This is supported by the statistics shared by the department, demonstrated in further detail in the table below: 

Last year, the May 2024 Budget included an allocation of an additional $29 million per year in funding to Inland Revenue for debt collection and compliance.⁴ Inland Revenue had reported a return-on-investment (ROI) of $9.50 for every dollar spent. Following this result, Budget 2025 would go on to increase this funding and allocate an additional $35 million in permanent annual funding in addition to the previous annual funding increase of $26.5 million.⁵ Per Inland Revenue’s latest report on its compliance activities, the ROI has increased to $11.81 for every dollar spent.

What is clear is that this increase in compliance activity is here to stay. Taxpayers should be prepared for Inland Revenue scrutiny.

January onwards – Pillar 2 compliance requirements

New Zealand's Pillar 2 rules are part of an OECD led global solution to address tax challenges that arise from the digital economy. The Pillar Two rules came into effect in New Zealand from 1 January 2025.

At a high level, multinational businesses with global revenue of €750 million or more, that pay less than the minimum global standard of 15% tax (as calculated under the Pillar 2 rules) on their profits as calculated on a jurisdiction by jurisdiction basis, will be expected to pay additional top up tax.

A multinational business subject to the Pillar Two rules with a New Zealand subsidiary, branch or permanent establishment is likely, at a minimum, to need to register with Inland Revenue. We understand that Inland Revenue's registration system should be available from mid-March 2026. It is expected that entities will be registered within 6 months post the year-end of the relevant ultimate parent entity of the multinational group that it is part of. 

There will also be further compliance obligations, including filing of New Zealand specific Pillar Two returns, in 2027.

For further details on registration, please see Inland Revenue’s website.

April - Tax governance

Alongside the boost in Inland Revenue audit activity, Inland Revenue also increased their tax governance expectations for taxpayers. The launch of Inland Revenue’s detailed governance guidance in April 2025 marked a significant step and communicated what is expected of taxpayers in an effective tax controls framework (TCF). Key focus areas included:

• A comprehensive tax policy outlining the business’s tax strategy, tax risk appetite and approach to managing tax risk;
• Regular board reporting which covers significant transactions and updates across key tax types;
• Independent design and operational testing on a regular basis to ensure controls underpinning key tax types are operating effectively and remain fit for purpose for the business; and
• Well documented processes, controls and procedures across key tax types.

The guidance clarifies that priority areas will vary between organisations based on scale and diversity of operations (i.e. level of existing documentation, tax contribution, and complexity of processes). For multi-nationals, this means having a localised document which demonstrates specific tax considerations for the New Zealand business. For significant enterprises, this extends beyond maintaining a TCF document and includes practical application of tax risk practices and an assessment of overall tax governance maturity. You can read our Tax Tips on the release at the time it was issued here.

April - Fringe benefits tax

In April, Inland Revenue also released the Issues Paper: Fringe Benefit Tax Options For Change, which introduced significant initiatives aimed at simplifying FBT measures and removing the barrier to compliance. The proposals included fundamental changes to several areas of the FBT regime including:

1. An overhaul of FBT calculations on motor vehicles which would reduce compliance costs by taking a 'close-enough-is-good-enough', set-and-forget system for private use;
2. Two proposed options for unclassified benefits provided they are not a substitution for remuneration (a $200 exclusion threshold per benefit, or a prescribed list of exempt benefits as a schedule within legislation); and
3. Shifting the entertainment rules to exist only within the FBT regime and simplifying the meaning of ‘entertainment’ by removing the prescribed lists of activities, instead focusing on the standard “nexus with income-earning activity” test.

These changes were expected to be included in the subsequent 2025 Tax Bill, however only smaller amendments, such as the treatment of gift cards and the reimbursement of unclassified benefits were included. The main consultation items were deferred for the remainder of the year and it is still unclear whether, or to what extent, they may be introduced in the future, however progress has been signaled.

May - the Digital Services Tax Bill

The Digital Services Tax Bill (288-1) (the DST Bill), introduced in 2023, was intended to allow the Government to impose, at an appropriate time, a tax on gross revenues of large multinational entities with highly digitalised business models that earn income from New Zealand. This was in response to a “perceived lack of development” towards a global solution to resolve tax challenges in capturing the digital services industry. The DST Bill included a proposed tax of 3% on gross revenue, applying to multinational companies with:

• Over €750 million in global revenue from digital services.
• Over NZ$3.5 million in revenue from digital services to NZ users.

However, in May, the Government decided to discharge the DST Bill from the legislative programme citing the ongoing preference for a global solution and progress of the commitment of countries to the OECD’s work in this area.  This development came at the time where the United States (US) was considering the One Big Beautiful Bill (which has since become law) which contemplated significant international tax changes in the US, as well as the increase of tariffs on imports to the US.

May - Budget announcements

In mid-May, Finance Minister Nicola Willis announced the Government’s 2025 Budget, outlining a tax package aligned with the Government’s goal of boosting economic growth across New Zealand. The tax announcements in the Budget centred on encouraging spending on infrastructure, attracting foreign investment, and removing barriers for skilled migrants, as well as the aforementioned increased compliance funding.

Encouraging capital investment - ‘Investment Boost’ and thin capitalisation reform

A key objective of the Budget is to promote investment to help make the New Zealand economy more productive and plug the current infrastructure deficit. The headline item of the Budget was ‘Investment Boost’, an accelerated depreciation scheme intended to encourage increased spending on new capital assets. Investment Boost allows an up-front deduction of 20% of qualifying assets’ costs, on top of standard depreciation for the year.⁶ 

To attract foreign direct investment into privately-owned New Zealand infrastructure, the Government also allocated $65 million to reform the thin capitalisation rules,⁷ with an acknowledgment by Inland Revenue that there are genuine commercial drivers for infrastructure projects to be debt funded in excess of the current safe harbours. These reforms involved a consultation process proposing two options for potential changes including a targeted thin cap rule that applies only to infrastructure projects and a broader rule based on third-party party debt.  

Attracting skilled workers – ESS and FIF reforms

Another key objective of the Budget was attracting and retaining skilled workers in New Zealand. In support of this the government announced changes to ESS and FIF rules. Please see our May Tax Tips for a more fulsome explanation of the proposed changes. At a high level, as part of the Budget announcements, the Government allocated $10 million to reforming the ESS rules⁸ and committed to progressing its modernisation of the FIF rules, including the introduction of the ‘revenue account method’ (RAM) whereby FIF income can be calculated on a realisation basis, rather than deemed income – more on this later.

Strengthening tax compliance 

As outlined above, the Budget included an additional $35 million of funding to Inland Revenue to expand tax compliance and debt management activities, which has resulted in an increasing number of audits, and volume of debt collected. 

KiwiSaver

The Budget also tweaked KiwiSaver settings for employers and employees, increasing default contribution rates from 3% to 4% over a three-year period, while scaling back certain Government contributions. Based on recent announcements, this change seems to be part of a longer term plan by the current Government to extend KiwiSaver and create more robust savings for individuals, with further increases signalled as part of National’s election strategy for 2026. 

June - Participating Advisor programme

In June, Inland Revenue introduced the Participating Advisor programme as part of its broader focus on tax governance and risk management for significant enterprises. The programme is designed to provide both businesses and Inland Revenue with greater confidence in tax compliance, while also streamlining compliance activities for those who participate.

The programme is voluntary and available exclusively to entities or groups with an annual turnover of at least $30 million or 50+ employees. This aligns with Inland Revenue’s ongoing focus on larger, more complex organisations, where the scale and diversity of operations can increase tax risk and the need for strong tax governance.

If you are a significant enterprise looking to enhance your tax governance and reduce compliance risk, it is important to consider engaging in a Participating Advisor review. See our Tax Tips for more details on how we can support you in making the most of this initiative. 

June – The draft Long Term Insights Briefing

In June this year Inland Revenue released a consultation draft of its Long-Term Insights Briefing (LTIB), titled ‘Stable bases and flexible rates: New Zealand’s tax system’. The LTIB is a document that is produced every three years and is intended to serve as a comprehensive analysis tool for New Zealand's tax system, designed to provide strategic foresight by identifying long term trends, the risks associated with these trends, and possible policy solutions. 

This year’s draft LTIB focuses on the necessity to generate sufficient revenue to adapt to demographic changes as New Zealand’s population ages (although is not focused on retirement savings adequacy). The draft LTIB sets out options to accomplish this while balancing flexibility to adapt to changing revenue needs and distributional objectives, while maintaining stability which provides predictable taxation, aiding taxpayers in planning and encouraging investments.

We expect to share a Tax Tips on the LTIB once it has been finalised – watch this space!

August - the Tax Bill

In August, the Taxation (Annual Rates for 2025-26, Compliance Simplification, and Remedial Measures) Bill (the Bill) was introduced, picking up several of the Government's central themes in relation to tax changes: attracting skilled people and reducing specific compliance frictions. Further details of  the key proposed changes contained in the Bill are set out below, with more information available in our September Tax Tips.

Non-resident visitors

The Bill proposed a new definition of “non-resident visitor”, picking up a thread from Budget 2025 around making New Zealand more attractive to globally mobile talent. The proposed new rules outline a simplified framework for “digital nomads” who spend limited time in New Zealand but remain employed and tax-resident offshore.  

The proposals modernise rules that have not kept pace with increasingly mobile global working patterns and align with the Government’s wider focus on reducing tax frictions that may otherwise deter skilled visitors from spending time in New Zealand.

Employee share schemes

The Bill also developed on the work signaled in Budget 2025 to make ESS simpler for both unlisted companies and employee shareholders and, in turn, more attractive for skilled workers considering New Zealand. The crux of the proposal is around liquidity – allowing for a deferral of taxing point to a liquidity event such as listing of the company on a stock exchange or a sale of the shares. The proposals reflect progress on a Budget theme but still fall short of broader, more comprehensive ESS reform that would meaningfully support New Zealand’s ability to attract and retain skilled people.  

Revenue account method

The Bill also introduced the RAM following Inland Revenue's public consultation this year, consistent with the theme of making New Zealand more appealing to internationally mobile individuals by easing tax barriers for new migrants. The RAM would shift taxpayers to a taxing approach based on realised gains and dividends, rather than an annual deemed return under the existing FIF rules. This shift aligns tax with actual cash flow and responds directly to concerns that the current settings deter skilled migrants who hold unlisted offshore investments. 

While the RAM provides some welcome relief, its scope is relatively narrow, and in some cases taxpayers may face higher outcomes than under other FIF methods or the capital gains regimes in comparable jurisdictions.

FBT 

Disappointingly for some, the Bill contained only a narrow set of the FBT amendments proposed earlier in the year, with many of the broader reforms not carried forward. The changes mainly tidy up the existing rules: gift cards are fully pulled into the FBT regime with the de minimis exemption removed, employers can choose to apply FBT to certain reimbursements, and global insurance policies can now be attributed or pooled. A few technical clarifications are also included. While helpful, these updates are modest and fall well short of the wider simplification many employers were expecting after Budget 2025. Since then however, the Government has signaled their commitment to continue work on the simplification of FBT.

Other items

There are also a large number of remedials and other amendments in the Bill that we have not discussed in detail – for a summary of these you can read our September Tax Tips. 

October – Government Tax and Social Policy Work Programme

Late in October, Revenue Minister Simon Watts announced the refreshed Tax and Social Policy Work Programme (the Programme) which coincided with further targeted consultation on the revised thin capitalisation rules for infrastructure mentioned earlier as part of the Budget. The Programme reiterates the Government’s growth agenda with the Minister calling out the focus on making New Zealand more attractive for capital, talent, and investment. The Programme itself is built around four distinct pillars:

1. Attracting and retaining capital and talent
2. Supporting small businesses
3. Simplifying the tax system and improving integrity
4. Improvements to social policy

As mentioned, the key pillars of the Programme are in line with broader trends as well as the Government’s stated aims. The announcement therefore did not contain any significant surprises, although the breadth of the Programme will mean a busy year ahead in tax policy.

2026 and beyond - looking forward

As we close out 2025 we look ahead to what the future holds for tax in the coming months. 

We expect the Tax Bill will be enacted in March 2026, followed by the 2026 Budget (which may or may not include Budget night tax legislation) and the introduction of the 2026 annual rates Bill around August or September next year. 

2026 will also be an election year, and as New Zealand heads toward the 2026 election we are already seeing some key tax policy developments taking shape. Labour’s announcement of a capital gains tax (CGT) and National’s announcements around KiwiSaver give an indication of the country’s tax considerations and concerns. Polling to date remains reasonably balanced. In such a contested environment, small shifts in voter preferences or coalition power dynamics could play a decisive role in shaping the next phase of tax policy. 

KiwiSaver reform

National’s proposal to raise default KiwiSaver contributions to 6%⁹ by 2032 (following the increase announced with the Budget) represents an approach aimed at improving the adequacy of individuals retirement savings without altering the voluntary nature of the scheme. NZ First’s call for compulsory and substantially higher contributions (8% for both employees and employers, increasing to 10%) points to a more structural change to KiwiSaver. The common trend is a recognition that many New Zealanders may be under prepared for retirement individually, and existing tax policy settings may not support shifting age demographics (mirroring a concern reflected in Inland Revenue’s draft LTIB). Investment in KiwiSaver also represents a view that a stronger domestic capital base would carry certain economic benefits, in alignment with the trends around capital and infrastructure investment seen during 2025.

Other parties however, have emphasised the practical limits of promoting personal savings. Labour, the Greens, and Te Pati Maori all highlight affordability concerns for lower income households. ACT alternatively has questioned whether raising compulsory contributions will genuinely increase national savings or merely shift money around. Ultimately, the view of the parties seems to be that any changes to KiwiSaver need to find a balance between the ambitions of the Government and the economic realities of New Zealand household budgets.

Capital Gains tax 

Labour’s decision to campaign on a targeted CGT adds a second pillar to the emerging tax debate. The proposal is a relatively limited measure rather than a broad structural change to New Zealand’s tax system. The tax would be restricted to commercial and residential investment property gains after 1 July 2027 and the revenue would be ring-fenced to fund expanded primary healthcare access. 

Reactions from other parties make clear that the CGT will once again be a defining point of conversation this election cycle. National has stated the scheme would discourage savings and investments and has formally ruled out a CGT, ACT have pushed back on the basis that in their view a CGT is essentially double taxation, and NZ First’s Winston Peters has stated the CGT would not be sufficient to fund the proposed healthcare expansion. The Greens conversely argue that it is far too limited in scope and fails to address wealth inequality. Te Pāti Māori have not released an official statement, but as alluded to earlier, the relative views of potential coalition partners will factor heavily into tax policy outcomes this election cycle. 

Stepping back, the common thread running through both policy areas is a willingness by parties to revisit assumptions about the structure and purpose of our taxation system. Whether the focus is on lifting private savings to ease future monetary pressures or introducing capital taxation to support public services, the debate reflects increasing pressure on the tax system to adapt to shifting demographics and economic conditions. The election will be similarly impacted by those same factors, and the outcome of which perspective gains the mandate to shape New Zealand’s next phase of tax policy development will be one to watch – we will keep you updated throughout the year via our Tax Policy Bulletin and Tax Tips publications.