Brief summary of tax changes
March 22, 2024
You would have seen a lot of this in the news recently about these changes, so we thought a brief summary would be useful. If you have any queries about how these changes might impact you, please contact us and we can help evaluate your situation.
Interest Deductibility
The ability to claim interest deductions will be phased back in with 80% of deductions allowed from 1 April 2024 to 31 March 2025 and 100% allowed from 1 April 2025 onwards.
Phasing back in of interest deductibility will be allowed for all taxpayers, whether they acquired the property, or drew down lending, before or after 27 March 2021.
Brightline Changes
The current 10 year and 5 year new build bright-line tests in section CB6A will be repealed and relaced with a new 2 year bright line test.
The main home exclusion in section CB16A will be returned to its original form. The exclusion will apply if the land has been used predominantly ( i.e. more than 50% of the land area), for most of the time the person owned the land (i.e. more than 50% of the period) for a dwelling that was the person's main home.
Removal of Depreciation on Commercial Buildings
The depreciation rate for all buildings with an estimated useful life of 50 years or more will be set at 0%. The 0% means buildings will remain depreciable property and historical depreciation deductions will remain recoverable when calculating depreciation recovery income. The 0% rate will apply to buildings regardless of when the building was acquired. The estimated useful life is determined on a whole of life rather than remaining life basis.
Trust tax rate increase
The trust tax rate will increase from 33% to 39% from 1 April 2024. If a trust has net income of $10,000 or less the tax rate will remain 33%.
If you have a company with retained earnings with a trust shareholder, you may wish to consider declaring a dividend before 31 March 2024 - please contact us as soon as possible if you think you might be in this situation.
Imagine you are pulled over by a police officer and asked “were you speeding?”, however, your speedo is broken, so you’re actually not sure. That is how it can feel when Inland Revenue (IRD) notifies you of an audit or investigation. On the one hand you know it is ‘part and parcel’ of doing business, on the other hand it is the last thing you need. From the outset, it is important to acknowledge that the person from IRD is a human being just doing their job. There shouldn’t be the need to stress or overthink the matter. But the process needs to be handled proactively and deliberately. If a request for information is received, do not provide the information without first engaging with your accountant. Typically, an initial information request is from a template that is not tailored to a particular business, industry or taxpayer. Hence, the requests tend to ask for a large volume of information, some of which may be irrelevant or immaterial. For your accountant, engaging with Inland Revenue is an ordinary part of the job and it happens more often than you would expect. It is quite normal to contact IRD in response to the request to agree on how to approach the process, timeframes, information to be provided and meeting times etc. All of which might not be in line with the first letter received. The purpose is not to be ‘restrictive’ or ‘difficult’, but instead, open and transparent with a view to ensuring the process is as fast and efficient as possible. In practice, IRD are also very understanding of working around the needs of the business itself. For example, if the business is subject to seasonal activity or ‘month-end’ processes, IRD is typically willing to flex the process to try to minimise any disruption. If there is an initial meeting with IRD, consider giving a ‘presentation’ on the business. This could cover the legal structure, physical business operations, locations, number of staff, and the accounting function. A clear understanding helps minimise the number of follow-up questions during the review process, enabling a more efficient process. It is important to be clear and concise. If the answer to a question is not known, state that there is the need to look into the matter further. Allow your accountant to answer items (verbally or in writing) that are more ‘tax technical’ in nature. All going well, nothing material is identified for adjustment and the process concludes with a ‘tick of approval’ and comfort that you were not ‘speeding’ after all.
On 22 May 2025, as part of the 2025 Budget, the Government introduced a new tax incentive called the ‘Investment Boost’, aimed at encouraging capital investment. It allows an immediate upfront deduction for 20% of the cost of an eligible asset. The new legislation applies from 22 May 2025. The Investment Boost applies to a broad range of assets, such as tools, machinery, vehicles, improvements to farmland, aquaculture business, forestry land and the planting of listed horticultural plants. In relation to depreciable assets, it needs to be new or used in New Zealand for the first time. Eligibility is based on when the asset is first used or available for use, hence if construction of an asset began prior to 22 May 2025, but the asset is not available for use until 22 May 2025 (or after), the investment boost deduction can be claimed. The 20% deduction is on top of standard depreciation, which is then calculated on the reduced base (i.e. 80% of the asset’s cost). A surprising aspect of the regime is that it applies to new commercial buildings. This is significant given commercial buildings are ordinarily subject to a 0% depreciation rate. Improvements to depreciable property may qualify for the Investment Boost in their own right, even if the asset itself is not eligible for the Investment Boost (i.e. the asset was used prior to 22 May 2025). Where an asset is only used partially for business use, the deduction will need to be apportioned. When an asset is sold, if the sales price is above the assets adjusted tax value, this will trigger depreciation recovery income. From a practical perspective, businesses will need to determine if their fixed asset systems can: · account for the immediate upfront deduction, · apply the standard depreciation rate to the reduced cost base, and · retain the full asset’s cost to ensure depreciation recovery income is calculated correctly. Xero have already made allowance in their software for the Investment Boost. If business systems lack flexibility, then manual adjustments may be required, which increases the risk of errors occurring. Assets which are not technically “depreciable property” but are currently allowed depreciation-like deductions, such as improvements to farmland, are eligible. However, eligibility is not based on use or availability for use. Instead, the 20% deduction is based on the amount incurred on or after 22 May 2025. Although, the benefit of the Investment Boost is arguably timing in nature, businesses have reacted favourable and it may ultimately drive the increase in capital investment the Government is looking for.
Over the past few months President Donald Trump’s “One Big Beautiful Bill Act” received quite a bit of attention before it was passed on 4 July 2025 - but why the fuss. The key business facing elements included: 100% first-year deduction for U.S. spending on factories, data-centre hardware and other “qualified production property,” plus a 35% credit for domestic semiconductor fabrication. Permanent R&D expensing and a higher cap that lets smaller firms write off more equipment immediately. Temporary deductions for tip and overtime income, an enlarged Child Tax Credit, and optional tax-advantaged “Trump Accounts” families may open at a child’s birth. Before the bill, companies could deduct interest only up to 30% of EBIT; after enactment they may deduct up to 30% of EBITDA, restoring a larger allowance. Eliminates the end-2025 sunset for the lower individual tax brackets, while leaving the already-permanent 21% corporate rate unchanged. The legislation also adds roughly US$150 billion for defence modernisation and US$75 billion for border security and immigration enforcement. The favourable capital related deductions may steer multinational manufacturing, AI infrastructure and chip-fabrication projects toward America, potentially altering supply-chain geography and competition over the next decade.
The Financial Markets Authority (FMA) has issued its first Financial Conduct Report (FCR). The purpose of the report is to be transparent about the conduct that it sees and the regulatory priorities it will focus on over the coming year. Regardless of size, businesses don’t operate in a vacuum and are increasingly being impacted by micro and macro forces. Highlights from the FCR include the following plans. Reported investment-scam losses reached NZ $194 million last year. The FMA aims to widen partnerships with the banking and technology sectors to enable faster information sharing so suspect domains and accounts can be frozen sooner. They will continue to publish scam warnings, case studies and information on the evolution of scams on its website. Recent outages in banking and cloud infrastructure have shown how quickly cash-flow can seize up. The FMA expects all regulated providers to invest in resilient technology and to monitor critical service partners so disruptions don’t spill over to merchants and payrolls. The FMA will continue to focus with the RBNZ on ensuring technology systems critical for the stability and performance of New Zealand’s financial system are resilient. Only 29 percent of New Zealanders know how to complain to a financial provider; boosting that figure is a priority. The FMA will be looking at how clearly firms signpost the right to and how to complain and how swiftly they remediate systemic problems. Effective complaints processes lead to greater trust and process improvement. The FMA will publish data on interest rate changes to improve transparency, which could lead to clearer explanations of how overdraft or term-deposit pricing moves with the Official Cash Rate. Under the new Conduct of Financial Institutions regime, banks and non-bank deposit takers must prove that loans and deposits still meet customer needs. Engagements with firms that self-report issues will occur and engagement with firms that do not appear to be self-reporting will be prioritised. Insurers will be told to revisit legacy policies and to explain cover, exclusions and price changes in plain language across the policy life-cycle. That should reduce “surprises” at renewal or claim time—especially on business-interruption and key-person cover. A thematic review will check whether financial advisers are upfront about fees, commissions and conflicts to ensure transparency on pricing. Gaps or delays in disclosure will attract enforcement attention. Wholesale offerors will face action if advertising is misleading, while ethical funds must substantiate “green” or “impact” labels. Better disclosure helps owner-operators compare opportunities without the need for specialist analysts. After several high-profile frauds, the FMA is pressing for law reform to safeguard client money and property and will scrutinise outsourced custody arrangements. The FCR makes for an interesting read, if only a ‘skim’ to get a sense of what areas the FMA is focussing on as part of setting higher expectations for banks, insurers, advisers and fund managers.
A Portfolio Investment Entity (PIE) is a type of investment vehicle that is able to pay tax on behalf of its investors, and depending on the 'prescribed investor rate' chosen, the tax liability on the income is able to be capped at 28%. This can be a material benefit to investing in a PIE - depending on the circumstances of a specific investor. When the top personal marginal tax rate increased to 39% and the income tax rate for trusts subsequently increased to 39%, there was a natural expectation that the income tax rate for PIEs would also increase. It became a common topic of conversation. To date, there has been no indication that the top tax rate applying to investors in PIEs will change and hence investments into PIEs continue to receive a comparative tax benefit of potentially 11%, being the difference between the capped rate of 28% and the top rates of 39%. That has also given rise to an increase in the number of banks and fund managers that provide PIE investment products. It is worth bearing this in mind the next time consideration is being given to making a passive investment and comparing the post-tax yields between the various options.
In the past year, Inland Revenue has increased its audit activity after a period of subdued activity that stretched from before the Covid-19 pandemic. As their activity has increased, it has been interesting to see what areas they are focusing on. Observation suggests that one of those areas is the classic capital / revenue boundary. This is an area that is notoriously difficult because of the grey areas that can arise – where two different people could easily reach contrary conclusions. One such example was recently heard by the Taxation and Charities Review Authority which had to consider whether building work qualified as either tax-deductible repairs and maintenance or non-deductible capital expenditure. For context, repairs and maintenance refer to costs that keep a property in good condition or restore it to its original state, such as repainting walls or replacing a broken window. These costs are usually deductible in the year they are incurred, reducing taxable income. Whereas, capital expenditure improves or upgrades a property, such as adding rooms or installing new heat pumps, for which costs are not immediately deductible but may be depreciated over time. The case involved a company that owned part of a large commercial building originally leased to a large commercial retail business. The company’s part of the building was worth about $95m. After the main tenant moved out, foot traffic decreased and another seven tenants vacated. The company spent over $13 million on upgrades to accommodate a new tenant that wanted the space to be converted from retail into offices. The upgrades included structural strengthening, improved glazing, a new glass façade, a new atrium, strengthening car park panels and bathroom upgrades. The company and IRD agreed on whether particular items were capital or revenue, but they could not agree on the classification of the glass façade and earthquake work. Hence, the decision focusses on those two items only. The company asserted the façade was simply replacing existing glass, and that the earthquake strengthening was necessary safety maintenance, not an upgrade. It pointed out that the ground floor already had glass panels and that the seismic work didn’t extend the buildings life, it just ensured it was up to safety standards. But the Authority saw things differently. It ruled that these works weren’t just repairs. They were integral parts of a much larger project. The glass façade wasn’t a like-for-like replacement; it was a modern design that changed the building’s appearance and use, including replacing some solid walls with glass and enclosing previously open spaces. The seismic work also wasn’t just a fix up, it was a significant upgrade to the structure that made the building safer and more marketable. The judge said that even though these works were only about 1% each of the building’s value, their impact on the overall character of the building meant they had to be treated as capital expenditure. Because they were part of a larger project that changed how the building looked and functioned, they didn’t qualify as routine repairs, and it was deemed a ‘commercial necessity to undertake the work to secure a new anchor tenant’. In areas of uncertainty, there is the need to do your homework before a position is taken. Consider it akin to ‘insurance’ if Inland Revenue decides to investigate.
Currently, Charities in NZ are broadly exempt from income tax. This is a choice that ‘we’ as a society have made. It is centred on the view that if an organisation is established for a charitable purpose, then ‘we’ should support that organisation and maximise the resources it has available to achieve its purposes. There are often debates around how wide the tax exemption should apply. The case of Sanitarium, a health food company owned by the Seventh-day Adventist church, is often quoted as the ‘case in point’. On 24 February 2025, Inland Revenue released an Officials’ Issues Paper titled Taxation and the not-for-profit sector. The release of the Paper represents the first step in a potential fundamental change to the taxation of charities in New Zealand. One of the questions raised by Inland Revenue is whether income from a business that is unrelated to achieving its charitable purpose should be subject to income tax. It asks what are the most compelling reasons to tax or not tax such businesses, what are the most significant practical implications and how to define whether a business is related to a charitable purpose? A flow on question becomes, if a business owned by a charity is subject to tax and that after tax profit is subsequently applied for a charitable purpose, should the charity receive a tax credit i.e. a tax refund. This would be akin to a charity making an interest free loan to the Government that is repaid when cash is applied for a charitable purpose. At least a bank pays interest. A further focus from Inland Revenue is donor-controlled charities and whether additional rules are required due to the risk of tax abuse. The key proposed changes appear to be whether to restrict how tax exemptions apply to donor-controlled charities and their business operations and whether to introduce a minimum distribution amount that must be applied for a charitable purpose each year. To the extent a charity pays tax, it has less cash available to be applied for a charitable purpose. What is missing from the Inland Revenue Paper is how that funding shortfall is to be met to ensure a net drop in charitable services does not arise. Even cash which is reinvested into a business operated by a charity, reduces the need for bank funding which would otherwise reduce the net profit available to be applied to charitable activities. Will the Government make up the difference? It is also curious that the Paper provides no ideas or consideration to changes that might help or support New Zealand’s charities.
When the unexpected happens — a fire, flood, or major equipment failure — insurance proceeds can provide some welcome relief. However, from a tax perspective, how that payment is treated isn’t always as simple as it first appears. While many businesses instinctively classify insurance proceeds as taxable income, this is not always necessary. Applying the correct tax treatment can potentially reduce your tax liability. If the insurance proceeds relate to a depreciable asset that’s been lost or destroyed, the key comparison is between the proceeds and the asset’s adjusted tax value (ATV). The ATV of an asset is calculated by subtracting any depreciation claimed from the asset’s original purchase price. It reflects the remaining value of an asset for tax purposes, which may differ from its market value. To determine the appropriate tax treatment, you should consider the following high-level guidelines: If the proceeds exceed the ATV but are less than the original cost, the difference should be treated as taxable income. If the proceeds exceed both the ATV and the original cost, only the amount up to the original cost is taxable income. The additional amount should be treated as a capital gain for tax purposes. If the proceeds are less than the ATV, the difference should be treated as a loss on disposal. For damaged assets, where the insurer covers repairs, the proceeds should not be taxable, and no deduction is allowed for the repairs. However, if the proceeds received exceed the actual repair costs, the excess reduces the asset’s ATV. If this reduction results in a negative ATV, that negative amount becomes taxable income, to the extent of depreciation claimed. Another aspect to consider is the GST impact. Ordinarily, insurance payments made to GST registered businesses or individuals are made on a GST inclusive basis. Therefore, the insurance proceeds should be included in the GST return for the period they are received. Conversely, when the replacement assets are purchased, the GST on these costs should be claimed back. As we know from natural disasters and significant events across New Zealand in the last few decades, the insurance process can stretch over a number of years. Consideration should be given to whether Inland Revenue has made any specific concessions (as observed with the Canterbury Earthquakes and Cyclone Gabrielle), timing of asset disposals, allocation of insurance proceeds and treatment of split payments. Remember, not all insurance proceeds are taxable. Assess what the payment was for and how it aligns with the ATV to ensure the correct tax treatment.
Most people have heard of “tax pooling”, but it is common for people to say they have heard of it “but, I don’t really get it”. Here is an explanation of tax pooling. For the purposes of provisional tax and tax obligations generally, a fundamental aspect is the “effective date” of a tax credit. This being the date a credit is treated as ‘received’ by Inland Revenue (IRD). If not received at the right date, interest and penalties could apply. Tax Pooling allows a business that has not paid tax at the right date, to ‘purchase’ tax with a specific effective date. To illustrate, take the impact of the Covid-19 pandemic on Air New Zealand (Air NZ). For the 30 June 2019 financial year its pre-tax income was $382m. However, for the 30 June 2020 year it made a loss. It went from one extreme to the other. Air NZ has a 30 June balance date, but for this purpose we’ll treat it as though it has a 31 March balance date, to make this explanation more commonly applicable. Under the standard provisional tax uplift method Air NZ would have been required to make provisional tax payments as it went through the 2020 year. Let’s assume it made the following provisional tax payments: 1. 28 August 2019 $37m 2. 15 January 2020 $37m 3. 7 May 2020 $37m In total $111m in provisional tax that is ultimately not needed because it ended up making a loss. Meanwhile, imagine a small local coffee and food delivery company that ‘boomed’ because it was able to go-online and satisfy the caffeine needs of individuals who worked from home. Under the standard uplift method, the business expected to have a tax liability of $150k and therefore made provisional tax payments as follows: 1. 28 August 2019 $50k 2. 15 January 2020 $50k 3. 7 May 2020 $50k In December 2020 its income tax return was completed and the owners find their final tax liability for the year is $550k, i.e. they need to pay a further $400k. Under the ‘use of money interest’ rules, IRD charge interest on that $400k shortfall from 7 May 2020. In a net sense, as at the 7 May 2020, the coffee company has a tax shortfall of $400k, whilst Air NZ has excess tax credits (at that date) of $37m. The rationale behind tax pooling is that rather than IRD paying interest to Air NZ and charging interest to the coffee company, Air NZ can ‘sell’ $400k of its excess tax to the coffee company (and others) with the tax credit transferring across at an effective date of 7 May 2020; and therefore, no interest is charged by IRD. The coffee company pays a fee (interest) to ‘purchase’ the tax credit, but it is less than the interest amount that would have been charged by IRD. Part of that fee is paid to Air NZ, but it is more than what IRD would have paid Air NZ in interest. A tax pooling intermediary acts as a broker to connect the two and ‘clips the ticket’ on the way through.
From the 2021-2022 income years onwards, the Inland Revenue (IRD) introduced increased disclosure requirements for trusts. The increased disclosure requirements were aimed at supporting the Commissioner’s ability to evaluate compliance with tax rules, develop tax policy, and assist with understanding and monitoring the use of trust structures and entities. In effect, it appeared as though the Government of the day was trying to gather intelligence to understand how trusts were being used to ‘minimise’ tax liabilities. A cynical person might also hypothesise the information could be used to estimate the revenue that could be generated from a capital gains tax. In practice, accountants have found the increased disclosures unnecessarily complex (the 2019 trust tax return guide was 57 pages, the 2024 guide is 88 pages) and confusing, which has given rise to increased cost that invariably is passed onto clients. For example, loans with associated persons are separated from beneficiary current account balances. But the distinction is arbitrary when both amounts represent loans to and from associated persons. The value of shares are to be recorded in one box, but shares held as part of a “wider managed investment portfolio” are to be recorded in a separate box. If a person has a single parcel of Microsoft shares managed by Craigs, which box does it get recorded in? IRD has now completed a review of the trust disclosure rules to determine whether changes should be made. In its review, IRD acknowledge that certain changes should be made to reduce the compliance costs for taxpayers. Recommendations from the review include reducing granularity by removing unnecessary breakdowns, reducing the number of subjective tests and improving the guidance and forms. IRD also commented that going forward the development of any changes to trust disclosure rules will take into account whether it will result in additional one-off compliance costs. Two minor changes from the 2025 income tax return onwards include trustees no longer being required to distinguish between whether a non-cash distribution was a distribution of trust assets, the use of trust property for less than market value, or the forgiveness of debt. Trustees are also no longer being required to distinguish between whether a cash distribution was made from trust capital or corpus. A future change should see information being pre-populated from disclosures in prior years. Alongside their review, the IRD engaged Cantin Consulting to complete an independent review. Interestingly, unlike the IRD report, this commented on the lack of support these disclosure rules have from taxpayers and their advisors. The compliance costs coupled with the scepticism around the purposes of these rules has led to the view that these rules are not worthwhile. It also highlighted the view that the rules have given IRD a better understanding of trusts and that without these rules the degree of focus and insights on trusts would not have occurred. Compliance with the trust disclosure framework has been frustrating for practitioners, hence the review that has now occurred, including the opportunity to provide feedback. The resulting changes are welcome.
