New Zealand Budget 2026 brings targeted tax relief and tighter rules.

Minister of Finance, the Hon Nicola Willis delivered what she termed a responsible budget with a focus on core services and targeted spending and, at least in intent, delivering a return to surplus a year earlier than previously forecast in 2028/2029. In support of this aim the government is expecting growth of 1.3% in the year to June 2026, 2.3% in 2027 and 3.2% in 2028, with NZD 9 billion higher than previously forecast over the next four years.

As was well signalled there is a focus on core government services with limited new spending (NZD 2.1 billion per annum) being directed primarily to health, education, defence, plus law and order.

For tax spending an additional NZD 60 million (NZD 15 million per annum) is set aside to fund IRD debt compliance activity. A minimum 3:1 return on investment is anticipated. The government points to approximately NZD 3 billion in overdue tax collected in the year to date in allocating this additional funding. Clearly, the level of IRD audit and review activity will continue to rise.

As far as tax changes are concerned these are small in scope but with some significant impacts and in many cases, gratifyingly reflects industry feedback.

These measures are proposed and subject to the legislation passing through Parliament; more information will be available as the relevant legislation is released.

2026 budget package

The table below summarises the 2026 budget package by sector.

Foreign Investment Fund (FIF) rules

New spending of NZD 72.5 million is projected. The expected changes (from 1 April 2026) are as follows.

• The recently introduced revenue account method (RAM and extended RAM) for unlisted FIFs will be extended to all NZ taxpayers allowing for tax to be calculated based on realised gains and dividends
• The de minimis threshold (whereby the FIF rules do not apply where the total cost of all FIFs held by an individual taxpayer is less than the threshold) is raised from NZD 50,000 to NZD 100,000 for the first time since 2000
• The attributing FIF income method will be expanded to allow use by founders even if their ownership drops below 10%
• It is clarified an investor holding shares at migration may continue to invest after migration of a NZ business offshore that lists on a foreign exchange and claim the 10-year FIF exemption

Non-Resident Contractors’ Tax (NRCT)

The expected changes (from 1 April 2027) are as follows.

• The exemption threshold will be increased from NZD 15,000 to NZD 75,000 (over 12 months)
• The single-payer rule will be in effect confirming each NZ payer only considers their own payments to a contractor (not payments from other NZ businesses)
• Exemption for low-risk entities established allowing certain entities (e.g., branches, limited partnerships) to be excluded from NRCT if they demonstrate tax compliance
• To improve administration a specific NRCT tax code will be included in the PAYE system
• An exemption for overseas aircraft asset lessors for dry leases (aircraft or parts only, with NZ lessee providing crew, maintenance and insurance) will be exempt from NRCT and be treated as tax exempt income for the overseas lessor

Research and Development Tax Incentive (RDTI)

Net savings of NZD 84.6 million are projected. The expected changes are as follows.

• A reintroduction of in-year payments
• A new discretion for IRD to allow late filing where this arises for reasons outside the control of the applicant (from 1 April 2027)
• An extension to the qualifying expenditure rules for mining businesses to align with other industries
• The cap on non-administrative internal software for R&D is reduced from NZD 25 million to NZD 3 million

Fringe Benefit Tax (FBT)

Fiscal cost of NZD 600,000 over four years. From 1 April 2027, a simplifying of the fringe benefit tax rules for private motor vehicle intended to reduce compliance costs means logbooks will no longer be required. Instead FBT will be based on a category approach, as set out below.

(FBT calculation methods for different fuel types will also apply with a lower percentage applying to hybrid and electric vehicles.)

Whilst the comprehensive rules foreshadowed in IRD’s December discussion paper have not come to pass, there is one related amendment: shareholder loans (including loans to directors and close relatives of shareholders) outstanding at the time of a company liquidation or Companies Register removal will be treated as taxable to the shareholder after six months. This applies to balances in existence at or after 4 December 2025.

Charities

The expected changes are as follows.

• From 1 April 2027 there is a return of the donation cap; the maximum entitlement of donations eligible for a donation tax credit is limited to the lower of NZD 100,000 or the donor’s taxable income. As there is no change to the applicable rate this puts the maximum annual credit at NZD 33,333.33
• IRD have indicated the NZD 100,000 cap will not apply to trusts with a charitable beneficiary
• The benefit of the donations tax credit will be able to be transferred to a charity via the MyIR portal
• IRD will also be able to approve donation associated tax refunds during the year (not just after year end as is current)

Not-for-profits

The expected changes are as follows.

• Confirmation membership subscriptions and levies made to not-for-profit organisations remain non-taxable (despite some recent IRD activity to the contrary)
• The tax-free threshold for income in not-for-profit organisations increases from NZD 1,000 to NZD 10,000 (no requirement to file returns unless requested where income is below this threshold from the 2027/28 income year)

Financial arrangements

The expected changes, in the main from 1 April 2027, are as follows.

• In response to concerns over tax arising on never realised foreign exchange movements, the budget includes proposals to reduce that impact, including:
• Ability to calculate income in the foundation currency
• Protections to counter double taxation due to the accrual basis of the financial arrangements rules
• A special calculation method for active investor plus related arrangements (this would apply from 1 April 2025)
• Exempting low risk, common foreign currency arrangements (e.g., private home mortgages, personal bank accounts or credit cards from foreign banks)

Other

The expected changes are as follows.

• From 1 April 2028, financial institutions will be reporting interest income information for resident withholding tax exempt customers
• Volunteers may require the relevant organisation to treat honoraria payments as salary and wages (simplifying the existing required schedular income treatment)
• From 1 April 2028, non-resident charities may no longer apply an income tax exemption in NZ on NZ sourced non-business income (e.g., dividends, interest or rental income; previously available on successful application to IRD)
• Private trusts will be required to pay income allocated to tax exempt beneficiaries within a specified timeframe or suffer tax at the trust level
• Working for Families’ calculations are to be simplified by removing low-risk income adjustments and an increase to the de minimis threshold to NZD 8,000 for other payments from 1 April 2027; residence requirements shift from tax residence to physical presence and citizenship or residence visa, with a six-week travel exemption, easing administration and clarifying eligibility

Bank levy and thin capitalisation changes

The expected changes are as follows.

• A new prudential levy on banks and other financial institutions to help cover the cost of regulation and supervision by the Reserve Bank; collection of NZD 209 million expected
• Applying from 1 April 2027, an increase in the minimum equity requirements for tax purposes (thin capitalisation percentage) for foreign owned banking groups from 6% to:
• 12% for groups including a domestic systemically important bank; or
• 11% for all other groups

These measures are proposed and subject to the legislation passing through Parliament; more information will be available as the relevant legislation is released.