Executive summary

On 28 May 2026, the New Zealand Government delivered the 2026 Budget, outlining incremental but significant tax reforms designed to enhance the country's attractiveness for capital and talent while maintaining tax base integrity.

Most measures are expected to be included in draft legislation later in 2026 and enacted by 31 March 2027, with varying application dates. A limited number of measures have already been enacted in the Taxation (Budget Measures) Act 2026.

Key measures include:

• Amendments to the financial arrangements rules to reduce the impact of foreign exchange movements, intended to support migrants
• Updates to the nonresident contractors' tax regime to modernize the rules and reduce barriers to cross-border service provision
• Reform of the foreign investment fund (FIF) rules, including expansion of the revenue account method and an increase in the de minimis exemption threshold
• Changes to the research and development tax incentive, including the introduction of in-year payments of tax credits for improved cashflow and tightening the cap for claims on internal software expenditure
• Simplification of the fringe benefit tax (FBT) rules for employer-provided motor vehicles
• Several other measures, including repeal of the income tax exemption for certain nonresident charities, and additional funding for Inland Revenue compliance and debt management activity

These reforms are particularly relevant for multinational enterprises with mobile workforces, cross-border financing arrangements and offshore investments.

Detailed discussion

Financial arrangements rule changes

To address uncertainty for individuals, particularly migrants, with financial arrangements denominated in foreign currencies, the Budget announces targeted amendments to New Zealand's complex financial arrangements rules.

Under the current rules, taxpayers may be required to recognize foreign exchange gains or losses on loans and similar instruments on an accrual basis, even if no cash has been realized. This can create volatility and compliance complexity, particularly for individuals with offshore assets or liabilities. The proposed changes seek to reduce the impact of foreign exchange rate movements and provide greater certainty. Key measures include:

• Allowing certain taxpayers to calculate income under some of the financial arrangements rules in a foreign currency — to reduce exposure to unrealized foreign currency gains or losses
• Providing safeguards against double taxation — to address situations in which certain individuals (such as those subject to tax in another country on a citizenship basis) may otherwise be taxed in multiple jurisdictions due to the accrual-based focus of the rules
• Introducing a new calculation method for Active Investor Plus visa holders — for arrangements acquired to meet the visa requirements, to prevent unexpected tax liabilities
• Removing certain low-risk arrangements from the rules — such as personal bank accounts, mortgages on private homes, and credit cards with foreign banks

The changes would generally apply from 1 April 2027, with earlier application (from 1 April 2025) for the Active Investor Plus visa proposal. Overall, the proposed amendments should improve certainty and reduce compliance burdens for affected taxpayers, although the outcome will depend on the final design and scope of the rules.

Nonresident contractors' tax (NRCT) regime updates

The NRCT regime — a withholding tax system designed to ensure overseas service providers meet New Zealand tax obligations — is being modernized to reduce compliance burdens for cross-border business activities. The proposals include:

• Increasing the monetary exemption threshold — for small contracts performed by nonresident contractors in New Zealand from NZ$15,000 to NZ$75,000 in a 12-month period
• Introducing a "single-payer" approach — so New Zealand entities only need to consider their own contractual activity with the nonresident contractor when determining whether a threshold exemption applies; New Zealand entities would no longer need to track the contractor's activity with third parties, simplifying compliance in multi-client situations
• Excluding certain low-risk entities from NRCT — such as New Zealand branches of overseas companies, limited partnerships or representative offices of a foreign company, provided they can demonstrate steps taken to be tax compliant

The NRCT reforms are expected to apply from 1 April 2027 after enabling legislation is passed. Collectively, these changes are designed to reduce barriers to cross-border services by alleviating withholding tax obligations for lower-risk or smaller engagements, while retaining safeguards to protect the tax base.

FIF reforms

The Budget announces a package of proposed changes to the FIF rules to reduce compliance costs and lower tax barriers to attract and retain capital and talent in New Zealand. Key features include:

• Increasing the de minimis threshold — to exempt taxpayers from mandatory compliance with the FIF rules if their foreign shares have a cost of less than NZ$100,000 (up from NZ$50,000), relieving smaller investors of FIF compliance obligations
• Expanding access to the optional revenue account method (RAM) for calculating FIF income — to all New Zealand tax residents rather than only recent migrants; broadly, the RAM allows for realization-based taxation of unlisted foreign shares, or on all foreign shares subject to further eligibility criteria (For information on the existing RAM, see EY Global Tax Alert, New Zealand enacts changes to support foreign investment in infrastructure and ease tax obligations for new migrants and remote workers, dated 1 April 2026.)

Additional technical amendments are also proposed, including changes to expand access to the attributable FIF income method for certain taxpayers as well as clarifications to the eligibility criteria for the 10-year FIF exemption in cases of corporate migration.

These changes would apply from 1 April 2026 for the 2026-27 tax year and are expected to be well received by affected taxpayers.

Research and development (R&D) tax incentive (RDTI) changes

The Budget announces several targeted reforms to the RDTI regime to ensure it remains well targeted, fiscally sustainable and supportive of innovation. Key proposals include:

• Allowing in-year payments of RDTI credits — enabling businesses to receive quarterly cash payments based on expected RDTI credits, an improvement on the current annual cycle; these payments would be limited to the total labor-related taxes paid by the business up to the time the quarterly payment is made
• Providing the Commissioner with greater discretion to correct errors and accept late RDTI returns — addressing concerns that the current regime is overly prescriptive with an inability to correct minor administrative errors and no flexibility to accept returns filed late for reasons outside the company's control
• Reducing the cap for internal software R&D expenditure — from NZ$25m to NZ$3m per year, significantly reducing the level of RDTI available for software development activities undertaken for internal use; this change would not affect software developed and sold/licensed externally
• Expanding eligible mining R&D expenditure — to bring more in line with other industries the range of R&D expenditure that mining businesses can claim

Most of the RDTI changes are proposed to apply from the 2027-28 income year, giving businesses time to adjust.

Although many of these proposals address longstanding concerns with the rigidity of the regime, the significant reduction in the internal software cap risks stifling innovation around the provision of new and improved services to customers.

FBT reform for motor vehicles

Following earlier consultation, Budget 2026 proposes a significant overhaul of the FBT rules for motor vehicles from 1 April 2027.

The key change is the introduction of a category-based framework, replacing the current approach that requires employers to track the number of days a vehicle is available for employee private use. Under the proposed rules:

• Vehicles would be classified under one of four defined usage categories, with standardized rules applying to each category.
• Incidental (infrequent or ad hoc) private use would not affect a vehicle's classification.
• New rates would apply for calculating the value of a motor vehicle, including differentiated rates for standard, hybrid and electric vehicles.

Overall, the proposed changes represent a shift toward a more practical and simplified model. Though employers may need to update systems, revisit travel and vehicle policies, and ensure appropriate governance is in place, the new framework is expected to reduce compliance costs in the long term.

Other measures

The Budget also includes several additional integrity and system measures, including:

• Proposed repeal of the income tax exemption for New Zealand-sourced nonbusiness income derived by nonresident charities that do not carry out charitable purposes in New Zealand, applicable from 1 April 2028
• A new exemption from NRCT for aircraft leasing in certain circumstances; this change has been enacted in the Taxation (Budget Measures) Act 2026 and applies retrospectively from 1 April 2026
• Proposed amendments to the thin-capitalization tax rules for foreign-owned banking groups from 1 April 2027
• Further funding for Inland Revenue's compliance and debt management activity

Implications

The tax announcements made as part of Budget 2026 reflect a targeted, incremental approach to improving New Zealand's competitiveness while reducing selected compliance costs and strengthening integrity settings.

The announcements will be relevant to multinational groups, internationally mobile employees, offshore investors and employers with New Zealand operations. Most measures are not yet included in legislation and may change as draft legislation is developed later in 2026.