Tax Updates: 18 May 2026

Welcome to this week’s review of tax issues where Richard comments on what’s been happening in the world of tax over the past week. If you have a question or would like a second opinion on any national or international tax issues, please contact Richard via email at [email protected].

My picks from the Bill

On 30^th March 2026 (which already seems like forever ago!), Royal assent was given to the Taxation (Annual Rates for 2025–26, Compliance Simplification, and Remedial Measures) Act 2026.

After the Bill’s passing, Inland Revenue (IR) has now released a 242-page “summary” of the changes, which I have only skim read to pick out the items of most interest to me, which I will now share with you.

Non-resident visitors

Qualifying non-resident visitors will be able to undertake remote work without triggering New Zealand (NZ) tax consequences for themselves and any affected entities. The amendments took effect on 1 April 2026, applying to persons’ who arrive in NZ on or after 1 April 2026 and will deem eligible visitors to NZ to be non-resident in NZ for up to 275 days in any 18-month period (thereby exempting the person from the standard 183-day presence rule). Note that the rule will not apply where the person is undertaking work in NZ that is for a NZ resident, or a NZ branch of a non-resident, or is offering goods and services in NZ for income from persons or businesses in NZ, or requires the person to be physically present in NZ.

If the person stays in NZ longer than 275 days (and remains here lawfully), then they will be deemed a NZ resident from day 276 (i.e. on a prospective basis). However, if the persons presence in NZ at any time becomes unlawful, then they will be treated as if they were never a non-resident visitor and normal residency tests will apply. It should also be noted that the permanent place of abode test still applies for a non-resident visitor, so if they did happen to acquire a Permanent Place of Abode (PPOA), then they would be deemed a NZ tax resident from this date.

Foreign investment fund – revenue account method 

We see the addition of a new method for calculating Foreign Investment Fund (FIF) income or loss from attributing interests in a FIF to be known as the Revenue Account Method (RAM), which will allow certain FIF interests to be taxed on a realisation basis, that is, on dividends derived and gains or losses on disposal. The new rule took effect from 1 April 2025 and is targeted towards new migrants (so check your client qualifies). The key features of RAM include:

• Gains and losses on disposal are discounted by 30% before being taxed at the person’s marginal tax rate.

• Losses on disposal may only be used against dividends derived from, and gains on disposal of FIF interests to which the RAM is applied. Excess losses may be carried forward into future years.

• A person needs to have been a non-resident under NZ domestic law or under a Double Tax Agreement (DTA) for five years before they become a NZ tax resident to be eligible to use the RAM; and,

• When a person elects to apply the RAM to their FIF interests, and they subsequently become a non-resident, they remain taxable on those FIF interests if sold within three years of becoming a non-resident.

The shares in the foreign company must have been acquired before the person becomes a NZ tax resident (including before they become a transitional resident) or before a treaty non-resident tie breaks to NZ. And there must be shares which are not listed on any stock exchange, for which there is no effective redemption facility for market value in relation to the share, and not be in an entity that derives 80% or more of its value from shares not satisfying the first two factors mentioned.

To complicate matters just a little, there is also a concept of “extended RAM” which provides that an eligible person may apply the RAM to all foreign shares if they are generally liable to tax in another country (provided it is a DTA country) on the disposal of those shares based on their citizenship or right to work and live in that country (extended RAM). This means a person subject to concurrent taxation in another country that has a capital gains tax remains eligible for the extended RAM even if they benefit from a special exemption regime in that other country for a particular sale of their shares.  

There are also deemed disposal events, so watch out for these: electing out of the RAM, moving out of the extended RAM, and leaving NZ.

Employee share scheme rule changes

Unlisted companies will be able to elect into a regime where the tax liability for employees who receive shares or share options as part of an employee share scheme can generally be deferred until the shares are easily valued and sold. This is to be known as a “liquidity event” being the listing of the company or a sale/cancellation of the shares (note there are some exceptions here). The new rule applies to share benefits provided on or after 1 April 2026. Within 20 days of issue or transfer of the shares to the employer, IR must be notified of the election to treat the shares as “employee deferred shares”.

Tax pooling timing extension

There is to be an extension to the period for which tax pooling can be used to pay income tax owing for the 2022–23 and 2023–24 income years until 1 October 2027, if certain conditions are met (as part of a tax pooling debt pilot). The person must make a contract with a tax pooling intermediary on or before 1 October 2026 to satisfy an obligation for either or both the 2022–23 and 2023–24 income years for provisional tax (other than under the accounting income method), terminal tax, or interest under part seven of the Tax Administration Act 1994 (TAA) on the provisional tax or terminal tax.

SaaS and non-resident contractors tax

Effective from 1 April 2026, contracts for Software As A Service (SaaS) and similar business models are not subject to Non-Resident Contractors’ Tax (NRCT), except to the extent to which the service involves personnel located in NZ who do not satisfy the conditions in section RD 8(1)(b)(v) of the (Income Tax Act) ITA07. SaaS involves the use of software without a physical representation, such as a subscription delivered via cloud services. These models were not considered when the NRCT rules were enacted or reviewed resulting in the language and concepts of the NRCT rules in legislation not mapping well onto SaaS contracts.

Financial arrangements – cash basis person deferral threshold gone!

Finally, some real simplification within the Financial Arrangements (FA) rules. Effective from the commencement of the 2025-26 income year, you will no longer need to keep an eye on the $40k deferral threshold, which previously would have meant your cash basis client became subject to the accrual basis. At last, you just need to satisfy one of the thresholds, and your client remains a cash basis person for that income year. And noting that the thresholds had not been changed since 1999, the income/expense threshold increases from $100k to $200k and the absolute value threshold from $1m to $2m. Also, the Variable Principal Debt Instrument (VPDI) threshold rises from $50k to $100k.

This article was originally published through the ‘A Week In Review’ newsletter. If you would like to receive Richard’s tax updates every Monday morning, you can subscribe here.