Budget 2026 was never going to be a significant tax reform budget – for that we would need a burning/burnt platform and planetary alignment.

The Government has been very consistent in its messaging that there would be no new taxes or substantive changes to tax settings. That was reinforced by the Minister of Finance who invited Australian taxpayers over, following the Australian Federal budget with its substantive tax revenue enhancing changes.

The blueprint for tax changes included in Budget 2026 can be found in the government’s tax and social policy work programme and detailed work contained in Inland Revenue issues papers released over the past year. There is a clear focus on compliance cost reduction, tax simplification and integrity measures, including to attract and retain foreign capital and talent.

Whilst not headline grabbing, it is important that tax settings do not impede business or overly impact the economy.

Main tax changes announced

The main tax changes to come through in Budget 2026 include:

• Fringe benefit tax (FBT) simplification (limited to motor vehicles).
• Improving tax rules for charities and not for profits (NFPs).
• Targeted simplification of the financial arrangements rules.
• Further relief provided for foreign investment fund (FIF) interests.
• Changes to the treatment of Research and Development expenditure.
• Increased investment to assist Inland Revenue’s debt compliance activities.

Many of the proposed changes announced today are short on detail including implementation. It is likely that further detailed work and draft legislation will be included in the Annual Tax Bill (expected to be introduced August/September this year).

Fringe benefit tax reform

The government has announced FBT simplification for the private use of motor vehicles which is broadly revenue neutral. A category approach for determining the private use of motor vehicles will be introduced following on from earlier consultation undertaken.

The requirement to maintain detailed logbooks will be removed with the introduction of a “close enough is good enough” approach. The policy intent is to significantly reduce compliance costs for business.

Unfortunately, the game changing fix for “other benefits” as previously proposed has not made the cut due to its perceived fiscal cost. Focus on in kind remuneration and delinking the calculation from the number of benefits provided to any given employee would have provided greater simplicity and compliance cost savings.

Given the barrier to change created by fiscal constraints CA ANZ has focused its advocacy on what is achievable given the Treasury fiscal costing framework and the accuracy of the Inland Revenue estimates.

Charities and Not-For-Profits

The Budget clarifies that membership subscriptions and levies of not-for-profits (NFPs) will remain non-taxable (this will likely require legislation to confirm the current treatment adopted by most NFPs).

Budget 2026 announced an increase from the current $1,000 exemption to $10,000 net income for NFPs. This will be welcomed by NFPs given that the current threshold has not been updated for many years and will ensure that smaller organisations can focus on their activities without the need to consider taxation.

Further advocacy may still be required by the sector as it is not clear whether the $10,000 threshold is intended to operate as a “cliff” or not. Reference to a cliff means that if a NFP has net income above the threshold, all their income will be subject to income tax and not just the excess amount!

To ensure that the donation tax credit scheme remains financially viable the Government has capped eligible donations at $100,000 (with maximum tax credit for individuals limited to $33,333). In one sense this is the Government “cutting its cloth to fit its financial position” but tellingly it also references a limitation to tax planning risks that can arise in relation to donations made in the context of donor-controlled charities. A minimum distribution rule was initially considered for donor-controlled charities but did not receive widespread favour from submitters.

Donors will be allowed to receive their donation tax credit refunds throughout the year in certain circumstances rather than waiting until the end of the tax year. This would likely follow the model used for payroll giving and needs to balance the systems costs to donee organisations.

Donors will also be able to gift their donation tax credit to a charity (but without a further credit arising on the gift).

Budget 2026 also signals the introduction of integrity measures for trust income allocations to tax exempt beneficiaries and the removal of the tax exemption for non-resident charities.

This suite of measures hopefully ends the extensive work done in the charities space and disruption over the past 2 years. The Minister of Revenue best sums up the body of work stating, “these changes are about striking the right balance between simplification, fiscal sustainability and ensuring the system has integrity.”

Financial arrangements simplification

Financial arrangements rule changes are predominantly focused on investors migrating to NZ and are intended to mitigate the impact of foreign exchange movements. Most non-residents are unfamiliar and unprepared for the concept of taxing unrealised gains. CA ANZ would like to see wider application of these concessions ultimately to all New Zealand taxpayers.

Measures will also be introduced to relieve migrants taxed on a citizenship basis from double taxation.

Further relief for foreign investment fund interests (phase 2)

While a more substantive review of the FIF rules is off the table at this stage it is pleasing to see that the FIF de minimis threshold has finally been raised from $50,000 to $100,000. This will simplify tax time for many small investors, taking them out of a regime which taxes unrealised gains and is compliance/disclosure heavy.

We would like to see the changes go further with positive steps to modernise reporting of FIF interests.

Budget 2026 also extends the optional Revenue Account Method (RAM) for unlisted foreign shares to all New Zealand taxpayers. This method only taxes actual dividend receipts and 70% of realised gains.

Research and Development

Changes to the Research and Development Tax Incentive (RDTI) at a high level are to ensure that the incentive remains well targeted, supports innovation, and operates as intended.

The RDTI is being changed to allow for in year payments to businesses. This is intended to remove a key cashflow barrier.

The cap on non-administrative internally generated software for Research and Development will be reduced from $25m to $3m. The intent is to ensure the tax credit rewards software development generating wider benefits.

Increased flexibility of RDTI return deadlines will be provided by allowing the Commissioner of Inland Revenue discretion to accept and amend late RDTI filed returns. This is a welcome change as the consequence of inadvertent late filing was disproportionate and irrecoverable.

Increased investment to support tax debt

As with the prior two budgets, this budget allocates a further $15m per annum or $60m over the forecast period to further enhance and expand Inland Revenue’s tax debt compliance activities. Unlike prior years a more modest 3:1 return on investment is expected on this additional funding.

CA ANZ supports initiatives to collect existing debt and to mitigate new debt arising in the future. We would like to see greater use made of debt reporting rules in order that the market has a more complete picture of the overall debt position of businesses with which they are dealing.

We would also like to see legislative change and greater use of technology to remove the temptation to misappropriate Employer Deductions, which account for $2b of the $9b total tax debt at 31 December 2025.