New rules, major shake-ups, and a deadline that’s closer than it looks

On 10 September 2026, the Government introduced the Taxation (Annual Rates for 2026–27, FBT Simplification, Foreign Investment Funds, and Remedial Measures) Bill. As the name suggests, the headline measure is a long-awaited overhaul of how Fringe Benefit Tax (FBT) applies to employer-provided motor vehicles — but the Bill also carries meaningful changes for Foreign Investment Funds (FIF), crypto assets, and a long tail of remedial items. We cover the key points below.

FBT motor vehicles: out with day-counting, in with a “category approach”

FBT on motor vehicles has long been one of the most compliance-heavy areas of the tax system — a 2022 regulatory stewardship review found the current rules poorly understood and poorly complied with. The Bill responds by scrapping the existing day-count method entirely and replacing it with a category approach, effective 1 April 2027.

Under the new rules, an employer selects one of six categories for each vehicle based on its expected private use, and applies a fixed inclusion rate to the ’vehicle’s taxable value under Schedule 5:

The philosophy behind the redesign is explicitly ‘close enough is good enough‘ — officials have accepted some over- or under-taxation in exchange for a regime employers can set at the start of the FBT year and largely leave alone, revisiting only when ’there’s a material change in a ’vehicle’s use (effective from the start of the following quarter).

Other notable features:

• Incidental private use is now ignored when classifying a vehicle — a one-off weekend loan of a work van, for example, won’t change its category or trigger FBT.
• The weight threshold for the FBT motor vehicle rules rises from 3,500 kg to 6,000 kg, reflecting the heavier build of many EVs and utes.
• The work-related vehicle, emergency call, and business travel exemptions are removed (no longer needed under the category approach), while the on-premises exemption is retained and a new exemption is introduced for emergency services vehicles.
• Rental car and campervan operators will treat vehicles hired to the public as unclassified benefits rather than under the category rules, avoiding an over-taxation outcome from the weight-limit increase.
• Close companies providing no more than two vehicles, all as unclassified benefits, may elect into the subpart DE rules (the section of the Income Tax Act covering motor vehicle expenses, where the company claims the business share of costs rather than paying FBT on private use)as an alternative to FBT.

New valuation rates for hybrids and EVs: alongside the category approach, the Bill introduces separate FBT valuation rates for hybrid and electric vehicles (lower than the petrol/diesel rate, reflecting AA running-cost and MBIE fuel data, with a built-in 12.5% allowance for vehicle downtime). These rates will be reviewed every four years.

What “branding required” actually means: branding is required for categories 2, 4, and 5 (not for 1, 3, or 6) and is intended as an integrity measure — a marked vehicle is a visible deterrent to an employee stretching its permitted private use, since being seen doing so (the Bill commentary’s example: a sign written ute towing a jet ski at the boat ramp) risks embarrassing the employer or flagging FBT non-compliance. A new definition of “branded vehicle” (proposed section CX 36B) requires identification that is:

• prominent — visible on the vehicle’s exterior, and
• permanent — the same form of identification the employer (or, for a rented/leased/hired vehicle, the vehicle provider) regularly uses in carrying on its business.

This is a meaningful bar: removable magnetic signage that gets taken off for private use won’t qualify, and a vehicle marketed as branded but not genuinely and permanently marked would default to category 1 (100% inclusion) regardless of its actual private-use restrictions.

Three carve-outs soften this requirement:

• Farming businesses that aren’t widely-held companies get a general exemption from branding altogether (reflected in category 3’s “not required” status and the farming carve-out for category 2).
• A Commissioner-approved exemption (proposed section RD 28B) will be available on application, for an employer, class of employer, or class of vehicle, where branding isn’t appropriate because of the sensitive nature of the employer’s business or the employee’s role, or the nature of the vehicle’s operation (e.g. an unmarked pool vehicle used for security- or safety-sensitive work).
• Transitional relief: vehicles purchased or leased before the Bill’s introduction don’t need to meet the new branding requirement to use the category approach — only vehicles acquired after that date do, sparing employers the cost of retrofitting existing fleets.

For most businesses, this is a one-off decision, not an annual headache. Get the category right at the start of the year and you can leave it alone — which is the whole point of the redesign.

Action point: We recommend that you should start thinking now about how you’re going to map your existing fleet against the new categories ahead of the 1 April 2027 start date. The date will come faster than it feels like it should. Talk to us before you’re left in the dark.

Foreign Investment Funds just got a whole lot easier for investors

The Bill also allows for wider access to the revenue account method:

• Revenue account method (RAM) access widened: previously targeted at recent migrants and returning New Zealanders, the RAM (and extended RAM) will become available to all New Zealand-resident natural persons and eligible trustees holding unlisted foreign shares, taxing gains on a realisation basis with a 30% discount. A five-year consistency rule applies once a taxpayer opts in or out.
• De minimis threshold lifted from $50,000 to $100,000 (effective 1 April 2026), restoring the threshold’s real value since it was last set in 2000 and taking more small-scale investors out of the FIF rules altogether.

Crypto Assets, simplified

• Crypto Asset lending rules: new rules (modelled on the existing share-lending regime) will tax “qualifying” crypto asset-lending arrangements — including wrapping, bridging, and collateral arrangements — on their economic substance as a loan, rather than as a disposal and reacquisition. This applies to arrangements entered into on or after 1 April 2027 with a term of a year or less and arm’s-length terms.
• Stablecoin exemption: gains and losses on qualifying stablecoins (cryptocurrency pegged to a fiat currency) will be exempted from tax where they would otherwise arise solely because the stablecoin was acquired for disposal — reducing compliance costs for a form of crypto asset increasingly used as a payment medium rather than an investment. Effective for disposals on or after 1 April 2027.

Beyond the fine print

The Bill is a large omnibus measure (278 pages of commentary). Beyond the headline items above, the following are the changes most likely to be relevant to you.

Financial arrangements rules

Several changes target compliance costs and cashflow uncertainty for taxpayers — particularly migrants — holding financial arrangements denominated in foreign currencies, all effective 1 April 2027 (for the 2027–28 and later income years) unless noted:

• Elected functional currency rule: eligible natural persons (and a limited class of family trusts/businesses) will be able to elect to calculate net income on their foreign-currency financial arrangements in a foreign currency rather than NZD, removing the effect of exchange rate movements from the spreading and base price adjustment calculations. The election is all-or-nothing across a person’s foreign-currency arrangements, requires a modified base price adjustment on entry, and carries a five-year lock-in once made (or once revoked).
• Quarantined foreign financial arrangements rule: allows eligible taxpayers — chiefly US citizens/Green Card holders who remain taxable in the US regardless of NZ residence — to calculate income and expenditure on qualifying foreign-sourced arrangements on a cashflow basis instead of an accrual basis, aligning NZ and US timing so double tax relief under the NZ–US DTA is actually available.
• Valuation of financial arrangements acquired for visa eligibility (effective 1 April 2025): removes the requirement to revalue NZD-denominated investments made specifically to qualify for the Active Investor Plus visa as at the date the investor becomes NZ tax resident. This eliminates ’phantom‘ gains or losses caused purely by exchange-rate/market movements between purchase and arrival.
• Excepted financial arrangements — foreign currency arrangements broadens the private-loan exception to remove the cash-basis-person requirement, brings foreign-currency private/domestic transaction and savings accounts into the exception, and fixes the $100,000 variable-principal-debt-instrument threshold (credit cards, revolving credit) so it is tested at the date the instrument is first entered into rather than being distorted by ongoing exchange rate movements.

RDTI: Paid faster, policed harder

A cluster of changes aims to improve Research and Development Tax Incentive (RDTI) cashflow, fairness, and targeting, mostly effective for the 2027–28 and later income years:

• In-year payments: approved RDTI businesses will be able to opt in to receive quarterly advance payments of expected R&D tax credits, rather than waiting up to 13+ months for their return to be processed. Each payment is capped at the lower of 15% of eligible expenditure incurred in the period and the business’s labour-related taxes (PAYE, FBT, ESCT) paid in that period, with total in-year payments capped at 80% of expected annual credits. Payments reconcile against the final RDTI entitlement, with use-of-money interest charged on any excess received.
• Internal software development cap cut from $25 million to $3 million per business (group basis) per income year, reflecting officials’ view that internal software R&D delivers less ’bang for buck‘ and carries higher integrity risk than other categories of R&D spend.
• New Commissioner discretions to extend RDTI filing deadlines or permit late amendments, where a business made genuine efforts to comply but missed a deadline due to genuine mistake or circumstances outside its control — addressing the current ’cliff-edge’ where minor administrative slips can mean losing the credit entirely.
• Partnership balance date alignment: partners who elect to report their share of partnership income using the partnership’s balance date will now be able to use that same date for RDTI reporting on R&D activity conducted through the partnership, removing a previous mismatch between income tax and RDTI reporting periods.

Approved Issuer Levy gets simpler — and Inland Revenue gets teeth

The Approved Issuer Levy (AIL) regime (the 2% levy borrowers can pay on interest to non-resident lenders instead of withholding Non-Resident Witholding Tax (NRWT)) is being simplified and given sharper teeth for non-compliance, from 1 April 2027:

• The reduced (six-monthly) filing threshold rises from $500 to $10,000 of expected annual AIL, and qualifying borrowers below that threshold move to annual filing — expected to reduce compliance costs for around 55% of AIL filers.
• Inland Revenue gains a power to deregister securities where AIL has been outstanding for two tax years despite notice and a six-month grace period, forcing the borrower back onto NRWT withholding until the security can be re-registered.
• The Stamp and Cheque Duties Act 1971 will be repealed and replaced with a new, standalone Approved Issuer Levy Act — a rewrite intended to be substance-neutral rather than a policy change.

Goods and Services Tax (GST) changes

• Zero-rating electricity exported to the grid from residential premises (from 1 April 2027): closes a revenue leakage risk where GST-registered households selling excess solar electricity back to their retailer often don’t realise (or don’t return) the GST owed, while the retailer still claims the input deduction. Zero-rating removes the mismatch and the need for supporting GST documentation on these supplies.
• Optional GST registration for non-residents supplying exported services (from the day after Royal assent): non-residents who only make zero-rated supplies of services to non-resident clients (unrelated to New Zealand land or property, performed while the client is offshore) can choose to ignore the value of those supplies when testing against the $60,000 registration threshold — extending relief previously available only to “non-resident visitors”. Voluntary registration remains available for those who want to keep claiming New Zealand input tax.
• GST deductions for goods and services acquired before registration (from 1 April 2027): replaces the current adjustment-based approach with a clearer rule allowing an input tax deduction once pre-registration goods or services start being used to make taxable supplies. The deduction is capped at the lower of what would have been deductible had the person been registered at acquisition, and the tax-fraction of open market value at the time taxable use begins — with a 12-month safe harbour letting recently-acquired assets use purchase price instead of requiring a market valuation.

Remedials and annual rates

• The 2026–27 income tax rates are set at the same rates currently in Schedule 1 of the Income Tax Act 2007 (i.e., no rate changes).
• A long tail of remedial amendments also features, covering GST technical corrections, trustee liability for beneficiary income, KiwiSaver enrolment for 16–17-year-olds with estranged guardians, RWT on dividends, Māori authority compliance simplification, depreciation and Investment Boost technical fixes, and the repeal of the (now-spent) Estate and Gift Duties Act 1968 and related legislation, among others.

We’re happy to go deeper on any of the above where it’s relevant to your circumstances. The financial arrangements and RDTI changes aren’t automatic — they need an election or registration to apply. If either touches your business, that’s worth a conversation before 1 April 2027, not after.

What’s next?

The Bill has had its first reading and will follow the usual select committee process. We’ll keep you updated as it progresses, particularly on the FBT motor vehicle changes given the lead time businesses will need before the 1 April 2027 start date.

A Bill this size can’t just sort itself out at the end of the year. Several of these changes would be better handled with a decision now, rather than a reaction later. The businesses that come out ahead are the ones who work through it before the deadlines close in. Talk to us — we’ll tell you which of these apply to you, and what to do about the ones that do.