Investment boost

• A new tax incentive which allows businesses acquiring productive assets to immediately deduct 20% of the cost of a depreciable asset in the year of acquisition, in addition to normal depreciation. This means businesses will face a lower tax bill in the year of purchase.
• The incentive applies to all new assets purchased in New Zealand, as well as new and used assets imported from overseas. It applies to new commercial buildings (even those not ordinarily depreciable) but does not apply to residential buildings.

KiwiSaver

• Government KiwiSaver contributions halved to 25 cents per dollar contributed, capped to a maximum of $260.72 p.a. 
• Removing the Government contribution for members with taxable income over $180,000 p.a.
• Increase the default employee and employer contribution rate from 3% to 4% over a 3-year period:

- 3.5% from 1 April 2026

- 4% from 1 April 2028

• Members who are under financial stress can apply to Inland Revenue for a temporary reduction of their contribution rate to 3%
• Extending the eligibility to receive employer and Government contributions to 16- and 17-year-olds.

Thin capitalisation

• To encourage foreign investment into New Zealand, $65m has been set aside for changes to the thin capitalisation rules, pending the outcome of consultation on the details.

Employee share schemes

• Allow employees to defer the tax liability that arises on income from certain employee share schemes, e.g. start-up companies, to be deferred until a liquidity event occurs, such as the sale of the shares.

Increased funding for audits and tax collection

• Increased funding of $35m has been allocated to Inland Revenue for compliance and tax collection. This is expected to have a return of 4:1 in 2025/26 and 8:1 in 2026/27 and beyond, being a mix of increased tax revenue and decreased debt impairment.
• Pay equity overhauled, increased spending in health, education, law & order, and defence
• Government spending slashed by an average of $5.3bn p.a. for the next four years.
• Half of the savings result from the overhaul of the pay equity thresholds.
• New spending of $6.7bn a year - mostly through increased budgets for health, education, law and order, and defence.

Other changes

• The Government will proceed with FBT reform proposals to modernise the rules and reduce compliance costs.
• Best start child payments to be fully means tested.
• Welfare for 18–19-year-olds now subject to a "parental assistance test" to prove their parents cannot support them.
• Student loan repayment thresholds frozen.

Our view

The Investment boost brings a depreciation tax saving forward. It has a positive cashflow effect for businesses, but it means that there will be less depreciation tax saving in later years. Before you rush out and spend, stop and check if this fits with your strategic priorities. This policy benefits investors in new commercial and industrial buildings most, because they will get a 20% tax deduction in the year of construction, even though commercial and industrial buildings are not normally depreciable from 2025 income year.

Kiwisaver balances will increase because of the increase in employee and employer contributions, and it’s good to have the scheme extended to working 16- and 17-year-olds. Employers will need to find further productivity gains to cover the additional labour costs. We are sad to see Government cutting back its own support for Kiwisaver, when its only saving $261 per person per year.

Don’t get me (Serena) started on changing the Pay Equity goalposts! It’s a good way to alienate 51% of the NZ voter base, by throwing out 33 pay equity claims and making them reapply under the new law[i]. It was not tested in a general election and should have been.

Means testing for Best Start child payments is welcome, but the abatement kicks in at quite a low threshold of $79,000 per household[ii]. Average annual household income was $134,599 at June 2024[iii], so this will hit most new parents. On the flip side, some of these families will recoup some of their reduction by the increase in Working for Families thresholds. Means testing for Jobseeker and emergency benefits, may mean our kids will live at home longer.

It’s no surprise that IRD is receiving a boost in funding for audits and tax collection. With a return on investment of 4 to 8 times, it is a winner for the Government coffers. What is a surprise is that the Government surplus is getting pushed out further every year. Or is it? Maybe we should be prepared for more tax audits and fewer takeaways.

-         Commentary from Knowledge Shop New Zealand Limited, with additional views added by Serena Irving, JDW Chartered Accountants Limited.

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An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.

  [i] https://www.rnz.co.nz/news/political/560849/pay-equity-claims-what-they-are-and-how-they-re-changing

[ii] https://www.rnz.co.nz/news/political/561888/tens-of-thousands-of-families-will-be-worse-off-under-budget-changes-to-best-start-tax-credit

[iii] https://www.stats.govt.nz/information-releases/household-income-and-housing-cost-statistics-year-ended-june-2024