TAX & BUSINESS NEWSLETTER APRIL 2026

This month's issue opens with an update on the economic environment and interest rate outlook, before turning to the key announcements from the Government's Budget 2026, delivered on 28 May. The Budget introduces a range of targeted tax changes aimed at reducing compliance costs, strengthening Inland Revenue enforcement, and adjusting settings for charities and investors. We cover the new cap on donation tax credits, the simplification of Fringe Benefit Tax for motor vehicles, important changes to the Foreign Investment Fund rules, and the increased focus on tax debt collection. We also look at the capital gains tax debate ahead of the October election.

BUSINESS AND ECONOMIC UPDATE

The New Zealand economy had been showing early signs of recovery in early 2026, but the global fuel crisis sparked by the US-Israel-Iran conflict has thrown that recovery off track. The NZIER Quarterly Survey of Business Opinion released in June showed a marked deterioration in business confidence as the fuel crisis escalated. Higher fuel prices are pushing up inflation and weighing on household and business spending, while the labour market remains soft with unemployment at 5.3% in the March 2026 quarter. Westpac's latest weekly commentary describes the economy as "slouching, not stalling," forecasting growth of just 1.5% this year, well below the Budget's more optimistic 2.7% projection.

The Reserve Bank held the Official Cash Rate (OCR) at 2.25% at its May Monetary Policy Statement, but the decision was extraordinarily tight. Three members of the monetary policy committee voted to raise rates immediately, with Governor Anna Breman casting the deciding vote to hold. The RBNZ warned that "the OCR will most likely need to increase sooner and by more than envisaged" in its February statement, and raised its terminal rate forecast to 3.28%. Markets are now pricing a 73% chance of a rate hike in July, with ANZ forecasting the OCR reaching 3.0% by December and ASB and Westpac picking a peak closer to 3.25%.

The core tension is between rising inflation, which hit 3.1% and is expected to climb past 4% later this year due to the oil shock, and an economy that remains fragile. As BNZ head of research Stephen Toplis put it: "You can't keep running stimulatory policy when inflation is problematic, no matter the cause." Kiwibank stands alone in arguing that hikes are not needed, warning that "hiking early will only kick the economy while it's down."

For businesses, the practical message is clear: borrowing costs are likely to rise in the months ahead, and the era of rate cuts is over for now. Mortgage holders who locked in lower rates should prepare for higher costs at repricing. Meanwhile, the OECD projects New Zealand GDP growth of just 1.4% for 2026, strengthening to 2.3% in 2027, subject to the evolution of the Middle East conflict.

Action: Review borrowing arrangements, stress-test cash flows against higher interest rates, and avoid building business plans around further rate relief. Businesses with variable-rate debt should consider their exposure carefully.

BUDGET 2026: CHARITIES AND DONATION TAX CREDITS

One of the most debated changes in Budget 2026 is the introduction of a cap on the donation tax credit. From 1 April 2027, the maximum amount of donations eligible for the 33.33% tax credit will be capped at $100,000 per year, meaning the maximum annual tax credit an individual can claim will be $33,333. Currently, there is no upper limit, provided the donation does not exceed the individual's taxable income.

Inland Revenue notes that while only about 350 donors currently give over $100,000 a year (just 0.1% of total donors), this group accounts for more than 10% of the $1 billion in annual giving. The change is expected to generate $19 million a year in additional revenue and is aimed at curbing aggressive tax planning, particularly concerning donor-controlled charities. However, the charities sector has strongly condemned the move, warning it could chill large donations and damage the delivery of essential social services.

It is important to note that corporate donations are not affected by this cap. Additionally, the Budget introduced positive changes for the sector, including allowing donors to claim tax credits throughout the year, the ability to gift tax credits directly to charities, and an increase in the tax-free income threshold for not-for-profit organisations from $1,000 to $10,000.

Action required: High-net-worth individuals planning significant charitable giving should review their donation strategies ahead of the 1 April 2027 implementation date.

FRINGE BENEFIT TAX SIMPLIFICATION

Employers will welcome the announcement that the Fringe Benefit Tax (FBT) rules for private motor vehicle use are being simplified. The current rules impose significant compliance costs and have led to misconceptions, particularly regarding the exemption for utes.

The Government intends to replace the requirement for detailed logbooks with a category- based approach. Vehicles will be categorised based on their intended use, and the taxable value will be progressively scaled down the less the vehicle is designed to provide a private "perk."

Furthermore, the formula for calculating FBT will be amended to result in lower FBT for electric and hybrid vehicles, reflecting their lower running costs and removing the current disincentive for businesses to adopt greener fleets.

Action: While detailed legislation is yet to be released, employers should anticipate a more pragmatic "close enough" compliance approach applying to benefits provided after 1 April 2027.

FOREIGN INVESTMENT FUND (FIF) RULES EASED

The Foreign Investment Fund (FIF) regime, often criticised as a quasi-wealth tax on foreign shares, is receiving a much-needed overhaul. Budget 2026 increases the de minimis threshold from $50,000 to $100,000. This means taxpayers with offshore investments costing less than $100,000 (excluding listed Australian shares) will no longer need to apply the complex FIF rules, though they remain taxable on actual dividends received.

Additionally, the Revenue Account Method (RAM), previously restricted to new migrants and returning New Zealanders, will be extended to all New Zealand taxpayers (natural persons and family trusts). This allows investors to elect out of the annual tax on unrealised gains and instead pay tax on capital gains at the time an unlisted share is sold, with a 30% discount applied.

Action required: Investors with foreign share portfolios should review their holdings to see if they fall under the new $100,000 threshold or if they would benefit from electing into the RAM methodology.

INLAND REVENUE COMPLIANCE AND DEBT COLLECTION

The Government has allocated an additional $15 million per year to Inland Revenue specifically for audit, compliance, and debt collection activities. This investment is expected to return $3 for every dollar spent, generating an estimated $45 million in additional tax revenue annually.

This signals a clear shift toward stricter enforcement. Businesses can expect increased scrutiny of GST returns, PAYE reporting, provisional tax obligations, and existing payment arrangements. With tax debt rising across New Zealand, Inland Revenue will have greater resources to pursue outstanding obligations and identify under-reported income.

Action required: Ensure all tax filings are accurate and submitted on time. If your business has outstanding tax debt, it is crucial to engage proactively with Inland Revenue to establish a payment arrangement before enforcement action escalates.

SHAREHOLDER LOANS AND COMPANY LIQUIDATIONS

A new integrity measure targets arrangements that defer or avoid dividend taxation through the use of shareholder loans. Under the proposed rule, if a company makes a loan to a shareholder and that loan remains unpaid six months after the company is liquidated or removed from the Companies Register, the outstanding amount will be treated as taxable income to the former shareholder.

Action: Business owners operating through company structures should seek professional advice regarding any overdrawn shareholder current accounts, particularly if considering winding up the company.

R&D TAX INCENTIVE CHANGES

The Research and Development Tax Incentive (RDTI) is receiving a mixed package of changes. On the positive side, in-year quarterly payments will be introduced to improve cashflow for start-ups and R&D-intensive businesses, and a new administrative discretion will allow Inland Revenue to accept late returns or correct minor errors. Mining companies will also become eligible for the first time.

However, the cap on eligible internal non-administrative software expenditure has been significantly reduced from $25 million to $3 million per year. This change alone is expected to save Inland Revenue $87 million in RDTI claims over four years and will particularly affect larger technology companies.

Action: Businesses claiming the RDTI should review the impact of the reduced software cap and take advantage of the new in-year payment option once available (most changes proposed from the 2027–28 income year).

ELECTION WATCH: CAPITAL GAINS TAX AND THE NZ-AUSTRALIA COMPARISON

With the General Election set for 7 November 2026, the debate over capital gains tax (CGT) is heating up. The Labour Party has proposed a targeted CGT on investment and commercial property (exempting the family home, KiwiSaver, farms, and inheritances) to fund free healthcare initiatives. The current Government remains firmly opposed, arguing it would add complexity and stifle economic growth.

The debate has been given fresh impetus by Australia's decision to significantly tighten its CGT rules in its May 2026 Budget, including a minimum 30% tax on capital gains and the removal of negative gearing for existing properties. This has led some Australian commentators to label

New Zealand a "tax haven" for property investors. As Deloitte tax expert Robyn Walker noted: "I think objectively, the New Zealand tax system is better than Australia. We have a simpler approach to a lot of taxes." New Zealand's lack of a standalone CGT, combined with no stamp duty or land tax, does make it an attractive jurisdiction for property investment. However, the current bright-line test (two years for residential investment property) and the ring-fencing of rental losses already impose some constraints.

Action: Regardless of the election outcome, property investors and business owners should keep informed about potential policy changes and ensure current compliance with the bright- line test and interest limitation rules.

KEY TAX DATES SNAPSHOT 2026‒2027

Disclaimer

This newsletter is published by Greenlane CA Limited for informational purposes only. The content provided herein is of a general nature and does not constitute professional tax, accounting, legal, or financial advice. While every effort has been made to ensure the accuracy and completeness of the information contained in this newsletter, Greenlane CA Limited makes no representations or warranties, express or implied, as to the accuracy, reliability, completeness, or currency of the information.

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