Taxation (Annual Rates for 2026-27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill

I move, That the Taxation (Annual Rates for 2026-27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill be now read a first time. I nominate the Finance and Expenditure Committee to consider this bill.

This omnibus bill contains a broad range of measures all aimed at growing the economy and encouraging investment.

A consistent theme throughout is reducing compliance costs, simplifying rules, and increasing certainty for businesses and taxpayers. The prime example is the proposals related to fringe benefit tax—or FBT. FBT was originally intended to ensure non-cash employment benefits, such as work vehicles, are taxed consistently with salary and wages. Over time, the rules have become increasingly complex, resulting in misunderstanding and poor compliance. The bill proposes a much simpler approach.

Rather than requiring detailed record-keeping and log books to determine private use of work vehicles, employers would select a category reflecting the level of private use and apply a corresponding valuation rate. These changes are expected to significantly reduce compliance costs for Kiwi taxpayers. Valuation settings will also be updated, with different rates applying to standard, hybrid, and electric vehicles, to reflect the lower running costs of electric vehicles.

The next major component of the bill relates to our Foreign Investment Fund—or FIF—rules. We started reforming this regime last year, focusing it first on settings that were deterring skilled migrants from staying in New Zealand. This year, we are focusing on removing the pain points for New Zealanders. The FIF de minimis threshold would increase from $50,000 to $100,000. This means that more people with smaller investments will not have to apply these rules, and instead will pay tax on the dividends received.

The bill would extend availability of the revenue account method for unlisted foreign shares to all New Zealand residents. This removes a requirement to pay tax on unrealised earnings from liquid assets. Related changes to the financial arrangements rules will reduce compliance costs and cash-flow uncertainty for taxpayers who hold foreign currency denominated financial arrangements.

And lastly, we have made a change to the transitional residence regime that will benefit both migrants and New Zealanders returning after 10 years or more from overseas. Previously, it was possible for the transitional residence period to be triggered while a migrant was still tax resident in another country. The bill provides that the transitional residence period would only start once a person is tax resident in New Zealand under a double tax agreement.

The bill also improves the research and development tax incentive, one of the Government’s largest business support programmes. Eligible businesses will be able to receive in-year payments based on expected entitlements. Inland Revenue will also be able to accept late applications, or correct minor administrative errors so that businesses can retain access to the incentives where appropriate.

We are also proposing to reduce the cap on eligible internal software development expenditure from $25 million to $3 million per business, per year. These changes are all intended to make the tax incentive more accessible and cost-effective, maximising its productivity benefits.

To remain fit for purpose, the tax system needs to adapt to new technologies. The bill also includes measures related to the taxation of crypto assets. A new rule modelling on existing share-lending arrangements will mean that gains or losses are recognised only when the asset is ultimately disposed of. More New Zealanders are now exporting excess electricity back into our grid. The bill will also zero-rate GST on excess electricity supplied from residential premises.

The bill also implements several Budget 2026 initiatives for charities and not-for-profits. The bill confirms that membership subscriptions and levies received by not-for-profits would remain non-taxable. The bill will also increase the statutory deduction for smaller taxable not-for-profits from $1,000 to $10,000 and make it clear that tax returns are not required so long as the net income is and remains below this limit.

To encourage more charitable giving, eligible donors would be able to receive donation tax credit refunds during the year, rather than waiting until the end of the year, and they will be able to transfer those donation tax credits directly to the charities they wish to transfer them to. The tax treatment of volunteer honoraria would also be simplified by allowing such payments to be treated as salary and wages.

Finally, the bill grants overseas donee status to six New Zealand charities with overseas charitable purposes. Our Government’s focus is clear: growing the economy, improving productivity, and creating the conditions for businesses to invest, grow, and employ—simply, to fix the basics and build the future. Tax is not the only lever in that agenda, but it is a very important one. I commend this bill to the House.

This is quite a large tax bill for a tax bill. There’s a lot in it, and they’re largely sensible measures that the Labour Party agrees with. They’re pretty standard tax measures: tidying up aspects of our tax law that need to be tidied up, and changing some stuff because the world has changed, so the laws need to change. The Labour Party supports this bill through to first reading, though there are several issues we will want to dig into in the select committee stage.

The changes around the calculation of fringe benefit tax (FBT) on vehicles are very sensible. It is a complicated area in terms of record-keeping. These new changes mean that an employer can specify whether a car is mainly for private use or mainly for business use, and then the fringe benefit tax is calculated accordingly. That’s a sensible change. But there are some wrinkles in it. One is that if a vehicle is going to be claimed to be mostly for business use, then it has to be a branded vehicle—it has to have the company’s branding on it. There’s an exception for farm and agricultural vehicles there.

Intriguingly, in the commentary on the bill, there is a description of what might happen. It says, “The purpose of the branding requirement for vehicles is to discourage employees from using company vehicles outside their permitted private use. This is because employees are generally less likely to use a branded vehicle for private use because doing so could bring the employer into disrepute or make non-compliance with FBT requirements more visible”, and then it says, “(for example, a company ute seen towing a jet ski at a boat ramp).” That’s a very specific example, and it makes me suspect that perhaps officials at Inland Revenue had seen exactly that going on. In fact, we know that there has been a fair amount of non-compliance around some of the FBT rules—perhaps because they’re unclear—and a fair amount of private use that wasn’t being accounted for in the FBT rules. So these are all pretty sensible changes sitting in there around fringe benefit tax.

However, I do think we’ll need to ask at select committee how Inland Revenue intends to monitor the way that businesses are classifying vehicles in terms of their private use or business use, and we’ll see what plans they have around that. There is something that we do need to know a little bit more about there.

In terms of the rules around financial arrangements—again, there are some very sensible changes. People say, “Well, what’s a financial arrangement?” It’s basically any long-term financial agreement—a mortgage, a swap, an investment bond—and, ordinarily, once it’s over a certain value, the income and expenditure and that has to be calculated spread over the life of the debt instrument or of the financial instrument. It’s complicated maths, and you really need to know how to do those finance calculations in order to do it. There are some sensible changes here around the financial arrangements rules to make sure that it’s just a little bit easier for ordinary taxpayers. Now, businesses likely still have to do the calculations, but they’ve got the resources to do it.

Something that people often didn’t realise is that debt denominated in a foreign currency falls into the financial arrangement rules.

Now, that’s a problem for a New Zealander who perhaps owns a house overseas and there’s a mortgage on that house overseas denominated in a foreign currency. That technically is supposed to be accounted for under the financial arrangement rules. Lots of people don’t even know that. Back when these rules were first put in place, the world was much less connected, people travelled less, but these days not only do we have many more migrants coming to live in New Zealand, but actually it’s entirely possible to get financing from a foreign bank quite easily, and so be subject to these rules.

There’s a pretty sensible exception that this bill is going to introduce to the financial arrangements: mortgages on private houses don’t need to be accounted for as a financial arrangement. Now, by and large, that looks like a good measure, but it does leave a wee bit of a potential loophole in the Income Tax Act. Where there’s a loophole, someone will walk through it if they possibly can. So, again, I want to check with officials during the select committee process as to exactly how they intend to monitor that and how they intend to ensure that people really are complying with the law.

However, as I said in my opening remarks, by and large, pretty much this bill looks like a very sensible tax bill—a standard tax bill that obviously advances the Government’s agenda, but also addresses several issues within the Income Tax Act. We will support this bill to select committee.

Thank you, Mr Speaker. Let me start by talking about one of the tiny, good things in the bill, and then I’ll speak to the Green Party’s concerns about the rest of it.

Fringe benefit tax. I had a member’s bill which was sadly voted down by members of Government parties earlier this term that would have fixed up some of the loopholes around a perception that company provided vehicles weren’t subject to fringe benefit tax if it was a double-cab ute, even if it wasn’t being used for work purposes and it was being used for personal purposes. This bill in front of us starts to incorporate some of that, which I’m relieved to see. I think, overall, the simplification looks like a reasonable thing.

There is a tiny incentive for hybrids and electric vehicles (EVs) to combat the fact that they actually were slightly penalised by the fringe benefit tax policy approach previously. Even going back to when I was Associate Minister of Transport, trying to talk to the then Minister of Revenue, Stuart Nash, I was trying to get the Inland Revenue Department to deal with this, and they were pretty obstinate. I think now we’re providing a tiny little incentive for companies to provide electric vehicles or hybrid vehicles as opposed to more high consuming fossil fuel vehicles as company cars.

That’s important because, actually, the majority of brand new cars that come into the country are purchased by businesses or fleet vehicles. So fringe benefit tax policy towards motor vehicles is a huge lever the Government can pull to ensure that we’re getting better outcomes from our vehicle fleet. That means better fuel consumption in a time of a fuel crisis—seems pretty basic. Getting those brand new EVs into the country also reduces the cost for ordinary New Zealanders who usually acquire their vehicles through the second-hand vehicle market. So that’s one tiny thing.

I mean, they could have gone much further. Australia exempted EVs from fringe benefit tax for five years or something like that and it worked quite well. That’s what my bill proposed, which the Government voted down. But here at least we’re seeing them do something sensible on the treatment of motor vehicles so we aren’t unintentionally subsidising fuel inefficiency and higher cost of fuel use through our fringe benefit tax approach to motor vehicles.

The Green Party won’t be supporting the bill. By and large, overall, our income tax policy penalises low-income earners and means that high-income earners like members of Parliament don’t pay enough tax. The Green Party have proposed quite a different approach in our tax policy that would see 96 percent of New Zealanders paying less tax, while still raising more revenue to invest in services and infrastructure that are for public good, which we all benefit from. We usually don’t support these bills because the current coalition Government, despite all their rhetoric around being about productivity, actually, what they’re mainly doing is upholding a status quo that allows those on the highest incomes and those with the most wealth to continue enriching themselves, whilst starving the Government and the public the revenue they need to invest in public good infrastructure and services. That is a political choice that does not help the country become more prosperous—quite the opposite. If you think that we’ve had a productivity problem in New Zealand for a few decades, maybe continuing the same approach, with the tax system, isn’t the right way to address it.

They also have significant concerns about some of the other aspects of this: introducing wider automated decision-making powers for Inland Revenue that can be used for decisions that impact taxpayers. This is an issue that we have had concerns about in relation to the Ministry of Social Development and benefits. We also have the same concerns when it comes to IRD. And it makes it easier for overseas-based student loan borrowers to be arrested. I just don’t think that’s the right approach at all. I mean, this Government has chased hundreds of New Zealanders overseas a day—hundreds a day; a huge number since they came into office—by cutting investment in public services and infrastructure, meaning there are no jobs, just making everything much worse for younger people who are already burdened with huge debt in order to access tertiary education or any type of vocational education. We really disagree with this punitive approach and the Green Party will not be supporting this bill.

ACT will be supporting the Taxation (Annual Rates for 2026-27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill. As the Minister of Revenue has already set out, this is a bill which does some very important things, including setting the annual rates for 2026-27 for taxation. As many people know, ACT is the OG “no new taxes” party, but we are also into tax simplification. The fringe benefit simplifications contained in this bill, we’re very interested to discuss and see it go through.

We often get a lot of questions about foreign investment fund rules—FIF rules—and again, there are some really sensible changes in here, which I think will help those having to navigate that very complicated system. I commend this bill to the House.

Thank you, Mr Speaker. New Zealand First rises in favour of this Taxation (Annual Rates for 2026-27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill. Beyond setting annual rates, the bill aims to continuously maintain and modernise the tax system by updating settings across foreign investment funds, fringe benefit tax, research and development tax, incentives, goods and services tax, not-for-profit organisations, and tax administration. It seeks to reduce tax barriers to capital and skills, eliminate unnecessary administrative compliance costs for small businesses, and provide legislative and certainty for modern digital administrative tools while protecting the tax base.

We certainly support the new rules for the foreign investment fund, raising the tax deductions from $50,000 to $100,000, and removing income tax return filing requirements for small non-profits—a very sensible arrangement for those small non-profits who are doing good charitable work in our communities. It delivers in-year advanced payments for R & D tax credits, putting vital cash flow into innovative Kiwi companies when they need it most.

This is pragmatic centre-ground legislation that cuts red tape and supports our productive sectors. I commend this bill to the House.

Thank you, Mr Speaker. Look, this is a pragmatic bill. One of the great highlights I enjoy out of it is the phrase “close enough is good enough” from the Minister of Revenue, as we’re simplifying the fringe benefit tax piece of legislation into six simple categories: mainly private use, mainly business, mainly business use on farmland, private use limited to home to work commuting, business vehicles for home to work travel only, and pool cars. So it really does help to simplify it. Mr Speaker, I commend the bill to the House.

Oh, thank you, Mr Speaker. A special treat to talk on a tax bill today. I was disappointed that the ACT member didn’t explain how tax on foreign investment funds works, because it is actually a pretty tricky area—I thought he was up to the job, but apparently not. In fact, this is something that constituents have approached me about: the difficulty where they—

💬 Hon Matt Doocey: Ha, ha!

Well, you might laugh, Mr Doocey, but I actually have constituents with wealth and they’re not all my uncle.

The fact of the matter is that if people come to New Zealand—particularly people who’ve been here for a while—they often have investments and pension funds in their home country. The foreign investment fund rules, as they currently sit, require a payment of 5 percent of the value per year—or that’s the deemed return on them, and so you’re taxed on that 5 percent whether the fund went up 5 percent or not.

Of course, the other problem with that is that you’ve got to actually find the cash, and if it’s a pension fund that’s over there, then you might not. In fact, the constituent I’m thinking of was on a modest salary in New Zealand—about $80,000—but did have a healthy retirement fund in the United States, and he had to find a sizeable chunk of cash to pay every year. He pointed out that there had been a carve-out for wealthy individuals coming to New Zealand whereby you could return the actual increase in the fund along with dividends and be taxed on that, which is essentially opting for an actual returns rule, as I understand it, rather than a kind of deemed return.

The whole idea of the 5 percent was to get around, essentially, the arduousness of valuing shares and dividends all the time. Here we have a situation where the indulgence that was extended to new immigrants essentially has been extended to everyone, and it makes really good sense that that’s the case. It is actually just enabling tax on real revenue, rather than on assumed revenue.

I must say, I giggled a little bit in terms of the fringe benefit tax and utes. I did mention to Deborah Russell, as she was speaking, that she needs to go to the Coronet ski field car park and see the number of branded utes up there. I do know that the IRD has been known to go to car parks at places like ski fields to see how many work vehicles are being used there. But this simplification of fringe benefit tax—I think there is always a balance between tax being accurate, being fair, and being workable. I think this fringe benefit reform kind of moves it towards the workability end; it’s not trying to get the tax perfect down to the last dollar.

The idea of lifting the categories of weight class is a good one because, obviously, you don’t want to be excluded from fringe benefit tax because you’ve got a double-cab ute that is over 3,000 kilograms. Moving that weight class up to 6,000 kilograms, so that we know that those vehicles clearly are light trucks and not everyday vehicles, is a really good thing.

Obviously, as we go through every year, we’ve got to update and confirm our tax rates. It’s a pretty fundamental part of the public finance framework. It’s a good bill, and obviously our members of the Finance and Expenditure Committee will be having a good old look at this bill at select committee, which is what should happen. In my experience, there are actually some useful tweaks around workability that happen in that forum. It’s one of those bills that because it’s a technical bill—and people do actually want the tax system to work effectively—there is some constructive feedback, and of course you get that independent advisor in who will also do much the same. So off to select committee it goes—not this Parliament, obviously, but the next one—and that’s all good stuff. Thank you.

This is a good bill. It’s particularly good for small businesses in its fringe benefit tax changes. I support it to the House.

Thank you, Mr Speaker. It is my pleasure to take a call on the Taxation (Annual Rates for 2026-27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill. This is a bill that Labour supports. It is a pretty standard tax bill—the kind of bill that comes to this House annually; it sets those annual rates, makes the changes that were included in the Budget, and various other tidy-up bits.

Now, there were some changes that were made at the Budget at the time that Labour said we were supportive of. For that reason, we are supporting this. One of those changes, actually, that I think is really important is the change to the foreign investment fund or FIF rules that were announced at the Budget. This is incredibly important in terms of how it is that we attract international investment to New Zealand. The way in which it did work was very much on an unrealised basis. Before we make these changes, the tax was charged on an unrealised amount. The investor was deemed to earn income equivalent to 5 percent of the opening value of their foreign shares each year, regardless of the actual income that they received.

Now, I think, across this House, we can see the benefit of attracting foreign investment to New Zealand—but not only foreign investment but attracting those individuals that want to come here and sometimes come home. I have met a number of New Zealanders who have gone overseas and done some remarkable things and want to come home, but they have got caught out by FIF rules. This is an important change. As New Zealand, increasingly we are punching above our weight in a number of industries. We have New Zealanders who do remarkably well, and they earn share options, often, in overseas companies, and when they come home, it can be incredibly complex. One of the changes that is made here, and one of the obvious changes that this bill is making, is that it moves that threshold from $50,000 to a new threshold of $100,000 for that.

There is also a new method for calculating FIF incomes on unlisted shares, which was introduced in the last tax bill, but it was only available to recent migrants. The new method, or the revenue account method, says that 70 percent of gains realised on the sale of shares during the year, plus any actual dividends received, are subject to the tax and the taxpayer’s marginal tax rate. This really shifts away from that idea of unrealised gain that happens in there.

The other change, and my colleague the Hon Dr Deborah Russell, who likes nothing more than the technicalities of a tax bill to go through in detail, and will be looking forward—well, this probably won’t be something that the current Finance and Expenditure Committee examines. But I know from other tax bills that she likes nothing more than going through in a very technical way, as both she and the Hon Barbara Edmonds are both technical tax specialists and like to pick the eyes out of such bills. My colleagues have talked about what’s happening in terms of the fringe benefit tax on motor vehicles, and that is a change that, I think, many see will need to be kind of kicked around a bit at select committee to have a look at whether it’s really doing what is intended and what we think is in the best interests around that.

The other change that is in this bill—and I’m interested to see what comes out of the select committee process about it—is the change around the research and development tax credit that is in here. The bill makes a good change to the Research and Development Tax Incentive. It enables businesses to claim credit quarterly, which improves their cash flow. This is especially useful for start-ups. It also expands the range of R & D expenditure that mining business can claim, and this is something I really want the select committee to have a very close look at in terms of what really is the research and development that’s happening within that industry, and what is it that is being given a tax break? We know that we have R & D tax incentives in New Zealand because we want to stimulate innovation—it’s the kind of economy we want to create—and we really need to have a look at whether that is fit for purpose.

Labour does support this bill. It is a bill we will happily pick up as a Government, because we know that this country cannot afford another three years of this National Government.

What this country can afford is a National Government that is focused on making sure that our tax settings are fair and just, and also a National Government that has already delivered tax relief to Kiwis for the first time in 14 years—and also another three years of a National Government that will continue to strengthen and ensure that our tax system is fair. Therefore, I commend this bill to the House.

Mr Speaker, thank you very much. Look, anything that reforms tax for small business is a wonderful thing, so with that, I commend the bill to the House.

A party vote was called for on the question, That the Taxation (Annual Rates for 2026-27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill be now read a first time.

Ayes 101

New Zealand National 48; New Zealand Labour 34; ACT New Zealand 11; New Zealand First 8.

Noes 21

Green Party of Aotearoa New Zealand 15; Te Pāti Māori 4; Ferris; Kapa-Kingi.

Motion agreed to.

Bill read a first time.

Referral to Select Committee