Budget 2026 – A Closer Look at the Tax Measures

On Thursday 28 May 2026, Minister of Finance Hon Nicola Willis delivered Budget 2026, framed as a "responsible Budget to secure New Zealand's future." It pairs fiscal discipline with a targeted tax package that Minister of Revenue Hon Simon Watts says is designed to reduce compliance costs, maintain the integrity of the tax system, and help retain capital and talent in New Zealand.

Inland Revenue has released a set of ten information sheets outlining how each proposal is intended to operate, with several measures already incorporated into the Taxation (Budget Measures) Bill (No 3) introduced the same day. These remain subject to refinement through the parliamentary process.

Below is a snapshot of the key tax and social policy proposals, including the proposed effective dates where confirmed.

1.    Foreign Investment Fund (FIF) Reforms — A Welcome Rebalance for Offshore Investors

Building on the migrant-focused changes in Budget 2025, the Government is extending the realisation-basis method (RAM) for unlisted foreign shares to all New Zealand taxpayers.  This was previously limited to recent migrants (refer to our previous insights here for further detail FIF Reforms May 6, 2025). These reforms will also extend the RAM to any New Zealand resident facing concurrent overseas taxation.

The FIF de minimis threshold is doubling from $50,000 to $100,000, alongside changes to the attributing foreign investment (AFI) continuity rules and a 10-year exemption for corporate migrations.
This is a meaningful simplification for individual investors and a sensible step toward making New Zealand a more attractive base for skilled migrants and returning Kiwis holding offshore portfolios.

Effective date: From 1 April 2026, applying for the 2026–27 and later tax years.

2.    Financial Arrangements Rules — Relief for Migrants

Targeted changes will exclude certain low-risk foreign-currency arrangements, such as mortgages over private homes, and reduce exposure to unrealised foreign exchange gains. A new calculation method is also being introduced for arrangements acquired for the purpose of meeting the Active Investor Plus (AIP) visa requirements. 

The package is aimed primarily at migrants caught off guard by the current rules and should provide much-needed certainty.

Effective date: All changes would apply from 1 April 2027, except for changes relevant to the Active Investor Plus visa, which would be backdated to 1 April 2025 instead. 

3.    Fringe Benefit Tax (FBT) on Motor Vehicles - "Close Enough Is Good Enough" 

FBT on the private use of motor vehicles is being simplified through a new category-based approach, with the logbook requirement removed.  The proposal would remove existing exemptions (such as the work-related vehicle exemption) because these should be captured within the categories. These should better reflect the range of vehicle use available for employees. This is expected to materially reduce compliance costs for employers, though some may end up paying more FBT under the proposed new categories.  

Effective date: These changes would apply for benefits provided after 1 April 2027.

4.    Research & Development Tax Incentive (RDTI) — Faster Cash, Tighter Targeting

The RDTI is being refined to keep it well-targeted while improving cash flow for innovators.

In-year (quarterly) payments will allow businesses to receive the credit during the year, rather than waiting until year-end. But the Government is also sharpening the focus: the cap on non-administrative internal software spend drops dramatically from $25 million to $3 million, while mining businesses gain access to a broader range of qualifying R&D costs. The Commissioner will also have discretion to accept late filings and amend RDTI returns.

Effective date: Core changes (in-year payments, software cap, mining) apply from the 2027–28 income year; the Commissioner’s late filing discretion applies from 1 April 2027.

5.    Company Loans to Shareholders — Integrity Measure

A new integrity rule will tax any outstanding loans to shareholders as income six months after a company is liquidated or otherwise removed from the Companies Register. This is aimed at curbing the use of shareholder loans as a substitute for taxable distributions.

Effective date: The new rule would apply in relation to any company removed from the register on or after 4 December 2025* 

*Note: the separate 12-month deemed dividend proposal floated in the December 2025 issues paper is not part of this Budget package and remains on a different policy track.

6.    Non-Resident Contractors — Modernisation and Aircraft Leasing Exemption

Two changes here:

•    NRCT modernisation: the payment threshold leaps from $15,000 to $75,000 per 12 months, with a streamlined single-payer approach.  The latter means a person engaging a non-resident contractor need only consider their own contractual relationship when determining whether the threshold exemption applies.  Certain low-risk entities will be excluded from the NRCT regime if they are tax compliant, and a dedicated PAYE NRCT code will be created. 
Effective from 1 April 2027.

•    NRCT exemption: The Bill introduces a permanent exemption from non-resident contractors' tax (NRCT) for the dry leasing of aircraft and aircraft parts.  Non-resident lessors will also be exempt from income tax in New Zealand for income received from leasing these assets.

Effective from 1 April 2026.

7.    Thin Capitalisation — Foreign-Owned Banking Groups

The minimum equity ratio for foreign-owned banking groups is doubling from 6% to 12% for groups that include a domestic systemically important bank (11% for other banks), aligned with the Reserve Bank's new prudential capital settings announced in December 2025.

Effective date: The changes would apply from 1 April 2027.

8.    Charities & Not-for-Profits — Integrity with a Silver Lining

This is arguably the most substantive integrity measure in this Budget. From 1 April 2027, an annual cap of $100,000 will apply to gifts that qualify for the donation tax credit, meaning the maximum credit any individual can claim will be $33,333.33 (at the current 33% rate).  There will be a broader extension to the in-year refunds expanded beyond payroll giving that will apply from 1 April 2028. A new mechanism will also allow a donor to transfer their donation tax credit refund to the charity they donated to via a simply yes/no election at the time of submitting the donation receipt.  This proposal would also apply from 1 April 2028.

For the not-for-profit (“NFP”) sector, there is a welcome degree of certainty in the confirmation that membership subscriptions and levies paid to taxable NFPs will remain non-taxable, particularly given Inland Revenue’s earlier issues paper had raised the prospect that these amounts could be brought within the tax net.

For smaller NFPs operating on tight margins, the effective tax-free threshold jumps from $1,000 to $10,000, starting from the 2027–28 income year. It’s a classic combination, tightening the rules at the top end while genuinely easing the compliance burden for the organisations that can least afford it.

Also tucked into the announcements is a targeted integrity measure for trust income allocations to tax-exempt beneficiaries. Under the proposal, a private trust that allocates beneficiary income to a tax-exempt beneficiary would need to pay that income in money within a specified period for the amount to remain tax-exempt. If the amount is not paid within that period, it would instead be taxed at the trustee rate. The measure is proposed to apply from the 2028–29 income year.

9.    Working for Families — Making It Simpler

Refinements include a simplified family scheme income definition, lifting the "other payments" de minimis from $5,000 to $8,000, and simplified residence requirements (including a six-week travel exemption).

Effective date: From 1 April 2027, applying to WFF entitlements for the 2027–28 and later tax years.

10.    New Prudential Levy on Financial Institutions

Not technically a tax measure, but worth noting is a new levy on banks and financial institutions which will recover the cost of Reserve Bank regulation and supervision. The levy is estimated to recover $209 million over the next four years, and although few details were provided as to how the levy might work, it is anticipated to be less than 1% of the total profits of the 4 major banks operating in New Zealand.

Effective date: To be set under separate prudential legislation.

The Bigger Picture

Budget 2026 is delivered against a relatively constrained operating allowance of approximately $2.4 billion, a public-sector savings drive, and a surplus target deferred to 2028/29. There are no broad personal tax cuts, and PAYE thresholds stay exactly where they are, meaning fiscal drag continues to do quiet work in the background.

Outside the tax package itself, one of the more significant economic signals is the Government’s planned $7 billion increase in capital investment in infrastructure, signalling a deliberate pivot from growth-era spending toward consolidation and resilience.

What This Means for Taxpayers and Advisers

Viewed as a whole, the tax package is modest in scale but targeted in effect. The clear winners? Offshore investors benefiting from expanded FIF rules, recent migrants getting long-overdue relief on financial arrangements, employers running vehicle fleets who stand to benefit from a simpler FBT framework, and R&D-active businesses finally getting faster access to cash through in-year credits. On the flip side, the integrity-focused measures such as shareholder loans, thin capitalisation for banks and charities reform, will demand careful review once draft legislation lands. 

A clear “two-track” timing pattern is also worth noting, measures building on already-signalled relief (FIF expansion, aircraft-leasing NRCT exemption) take effect from 1 April 2026, while measures requiring system or behavioural change (RDTI in-year payments, NRCT modernisation, donation tax credit cap, NFP threshold, Working for Families) generally take effect from 1 April 2027 or the 2027–28 income year.

As always, the devil will be in the detail. Our team will be working through the Inland Revenue information sheets and closely tracking each proposal as it progresses through the Bill process. We will share further analysis as draft legislation is released, so watch this space. 

At-a-Glance: Budget 2026 Tax Measures and Effective Dates Reference Points