The bill would make numerous remedial amendments designed to ensure that tax legislation works as intended. We have recommended further changes of a similar nature. Apart from some minor amendments recommended in the “Other matters” section below, we generally do not discuss minor and technical amendments in this commentary.¹

We note that the Minister of Revenue is intending to release an amendment paper during the committee of the whole House. We received a briefing from Inland Revenue officials on the content of the amendment paper during our consideration of the bill.

Clause 98 would insert section YD 1B in the Income Tax Act 2007 to specify the rules for determining when a person is a “non-resident visitor” whose income from remote work is exempt from New Zealand tax. We recommend amending clause 98 by inserting new subclause (2) to specify that these rules would only apply to a person who commences a visit to New Zealand on or after 1 April 2026.

As introduced, clause 98 provides that a person who visits New Zealand is a non-resident visitor if “they are a tax resident in a country or territory that imposes a tax that is substantially the same as income tax imposed under this Act.” This is intended to ensure that income earned by a non-resident visitor while in New Zealand is subject to income tax in the person’s country of residence. The international tax framework seeks to avoid both double taxation and double non-taxation of income as far as practically possible.

Submitters pointed out that the requirements should consider situations where a jurisdiction other than the residence jurisdiction taxes the income in question. We agree, and propose expanding the requirement for income to be taxed in the residence jurisdiction to another situation.

We recommend amending clause 98, new section YD 1B(2)(h), to account for non-resident visitors in New Zealand that are liable to tax in a country or territory outside New Zealand on the basis of citizenship. This change would make the proposed benefits available to a broader group of visitors while still addressing integrity concerns. We recommend similar amendments to the wording in clause 15, new sections CW 22B to CW 22D.

Clause 97 would amend section YD 1 of the Income Tax Act 2007. Proposed new subsection (14) provides that, if a person who is a non-resident visitor no longer meets the requirements set out in proposed new section YD 1B(2), which would be inserted by clause 98, and is lawfully present in New Zealand, the person is only treated as a resident for tax purposes from the first day the person stops being a non-resident visitor.

We agree with submitters that a person potentially losing their non-resident visitor status due to a backdated change in their tax residence status in another jurisdiction does not align with the policy intent. The intent is for people to have confidence to visit New Zealand for longer periods of time and to be subject to the existing tax residence rules.

We recommend amending clauses 15, 97, and 98 so that any backdated cessation of a person’s tax residence in another jurisdiction would be disregarded when assessing whether the person is a tax resident in another jurisdiction. This change is intended to support a person who has found themselves in the situation of ceasing their tax residence in another jurisdiction retrospectively.

The policy intent of the proposed rules is that, from the point a person ceased to be a non-resident visitor (for reasons other than continuing to remain in New Zealand unlawfully), the existing tax rules would apply. This includes transitional residence rules.

We agree with submitters that the transitional residence rules should be amended to clarify how they interact with the proposed non-resident visitor rules. To do so, we recommend inserting new clause 75C, to amend section HR 8 of the Income Tax Act 2007.

Some submitters raised concerns that a visitor may not be able to easily apply their circumstances to the “substantially the same” income tax test, to determine whether their jurisdiction’s income tax system meets the requirement. This uncertainty may act as a disincentive to work remotely from New Zealand.

We recommend amending the new sections that would be inserted into the Income Tax Act 2007 by clauses 15 and 98(1). Our amendment aims to simplify the requirement for a non-resident visitor to be liable for tax in their home jurisdiction by removing the “substantially the same” as income tax under New Zealand law requirement. The person would only need to determine whether they are liable to tax in that jurisdiction on the basis of residence or citizenship, irrespective of the nature, form, or rate of tax proposed. This approach would simplify the application of the rules.

Clause 99(1) would amend the Income Tax Act 2007 by inserting new section YD 2(1C) to provide exemptions to the centre of management and director control corporate residence tests. The activities of a non-resident visitor present in New Zealand would be disregarded when determining whether a company is tax resident in New Zealand. As a result, New Zealand residence-based tax obligations and compliance costs would not be imposed on the company as a result of the non-resident visitor’s short-term visit to New Zealand.

We agree with submitters that the activities of a non-resident visitor should also be disregarded for the purposes of the head office corporate residence test. This exclusion would provide greater certainty, especially for small business owners who undertake a short visit to New Zealand. We recommend amending clause 99(1) accordingly.

The disregarding of a non-resident visitor’s activities for the purpose of New Zealand’s corporate tax residence tests in proposed clause 99(1) requires the entities to be resident in a country that imposes a tax that is substantially the same as New Zealand income tax. One submitter questioned the need for this restriction, noting that it had not been imposed for the purposes of determining whether a fixed or permanent establishment existed in New Zealand.

To simplify the rules, we recommend amending clause 99(1) to omit the requirement that the foreign company be resident in a jurisdiction that imposes a tax that is substantially the same as New Zealand’s income tax.

The bill proposes that a person who breaches their visa conditions, such as by overstaying, would be deemed to have never had non-resident visitor status. One submitter noted that this has the potential to adversely affect a foreign employer who has reasonably relied on this status for an employee. They suggested that the loss of any tax concessions for the foreign employer should only be from when the breach first occurred.

We acknowledge this point, and suggest that for anyone other than the non-resident visitor, the loss of tax concessions should be prospective, from the date the person’s non-resident visitor status ceased. We recommend amending clauses 97 and 98 accordingly.

The approach would remain retrospective for an individual who breached their visa conditions—that is, they would lose all tax concessions they would have otherwise been eligible for during the period they have been in New Zealand.

A person may be a non-resident for tax purposes but a New Zealand-based borrower for student loan purposes. As the borrower, they would be required to declare income from all sources including income and adjustments that apply to them as if they were a New Zealand resident (“adjusted net income”). Their non-resident overseas income would be included when calculating their student loan repayment obligation for a relevant tax year.

We recommend inserting new clause 180B to insert new paragraphs (aa) and (aab) into clause 5 of schedule 3 of the Student Loan Scheme Act 2011. This amendment would make clear that although the income earned by a non-resident visitor would be included in the proposed income tax exemptions, it would not be treated as exempt income for student loan purposes.

Clause 56 would insert new section EX 56B into the Income Tax Act 2007. It sets out the provisions for calculating FIF income or loss under the new RAM.

Clauses 38 and 60 of the bill as introduced would insert new sections DN 8B and EX 59B into the Income Tax Act 2007, setting out the provisions for RAM losses to be available to offset RAM gains only.

We agree with submitters that losses arising from the disposal of RAM interests should be available to offset dividends from RAM interests and that this would be consistent with other FIF calculation methods. However, the RAM proposal does not take the qualifying FIF interests out of the FIF regime and tax them under ordinary income concepts. The treatment of RAM losses should remain consistent with other FIF calculation methods, where FIF losses may only offset income from FIFs arising under the same calculation method.

We recommend amending new section DN 8B(2), inserted by clause 38, and new section EX 59B(3), inserted by clause 60, to allow RAM losses to offset dividend income derived from RAM interests.

Some recent migrants or returning New Zealanders may become subject to the FIF rules in the 2025 income year. They would have to choose a FIF calculation method even though the RAM would not be available in the 2025 income year. Under the bill as introduced, taxpayers would fail the proposed test if they had to use another FIF calculation method before the RAM becomes available in the 2026 income year.

We recommend amending the bill by inserting clause 67B, new section EZ 32H (Person using another method for RAM interest before 1 April 2025), into the Income Tax Act. This transitional provision would clarify that a taxpayer would be eligible to use the RAM even if they had to use another FIF calculation method in the 2025 income year.

Some submitters do not support the RAM applying on a portfolio basis to all RAM interests. We heard that eligibility tests for a RAM interest would not be straightforward and easy to apply, and that the incorrect application of these rules would inadvertently result in the RAM not being available. One submitter suggested that, instead, the RAM should be optional on a “per security” basis with a minimum lock-in period for changing to a different FIF method for that security. Another submitter suggested that taxpayers should retain the ability to apply the attributable FIF income method to RAM interests despite the current proposal that RAM apply on a portfolio basis. We heard that, without this amendment, it could result in the RAM being viewed as punitive rather than facilitative.

The submissions raise a wider point around how the proposal that the RAM apply on a portfolio basis interacts with other requirements of the FIF rules.

We recommend amending clauses 51, 61(3), and 95(8B) to allow excluded RAM interests to be ignored. This would include inserting new section EX 46B(6B) (Meaning of excluded RAM interest) via clause 51. These changes would allow taxpayers to apply a mandated FIF calculation method or the attributable FIF income method to eligible RAM interests without losing their eligibility to apply the RAM to other RAM interests.

The RAM is intended to ease cashflow pressure resulting from FIF liability on illiquid pre-migration holdings. We agree with submitters that a FIF interest that does not have available a true redemption facility for market value is, in substance, illiquid and should not be precluded from being a RAM interest. However, we are wary of trying to legislate fine lines around when a redemption facility is or is not arm’s length. We consider that the requirement for the redemption facility to be arm’s length achieves the policy intent without introducing unnecessary complexity. Instead, guidance should be provided by Inland Revenue on the characteristics of an effective redemption facility in its Act commentary.²

We therefore recommend amending new section EX 46B(5)(a)(iv), to be inserted by clause 51, to insert the word “effective” in front of “redemption facility”. This would make clear that only an effective redemption facility would preclude a FIF interest that meets all other criteria from being an eligible RAM interest.

We agree with submitters that individuals should be eligible to use the RAM if they tie-break to New Zealand under a double tax agreement on or after 1 April 2024, provided they have also been a non-resident under a double tax agreement (or under New Zealand domestic law) for a continuous period of at least 5 years before tie-breaking to New Zealand.³ This is because those people will have had no reason to engage with the New Zealand tax rules on foreign investments, similar to people who have been non-resident under New Zealand domestic rules. As a consequence of this recommended change, we also recommend that FIF interests acquired while the individual was a non-resident under a double tax agreement should be eligible to be RAM interests, provided those interests meet all other requirements proposed in the bill. We were advised that this amendment is necessary to make the proposal workable because these FIF interests would otherwise not be eligible, having been acquired while the individual was a New Zealand tax resident under New Zealand domestic law.

To achieve this, we recommend amending new sections EX 46B(3), (7)(a), and (8)(a), which would be inserted by clause 51. This would allow treaty non-residents (that is, New Zealand tax residents treated as non-tax residents under a double tax agreement) who tie-break to New Zealand on or after 1 April 2024 to be eligible to apply the RAM. We also recommend amendments to new section EX 46B(5)(a)(ii), inserted by clause 51, and new section EX 56B(7), inserted by clause 56, to allow FIF interests acquired by a treaty non-resident before they tie-broke to New Zealand to be eligible RAM interests if they meet all other criteria.

Clause 56 sets out the formula for calculating the net disposal amount. The formula takes into account disposal proceeds, cost, and foreign accruals, which are defined in EX 56B(5).

Submitters told us that the term “foreign accruals” needs to be clarified and identified the following issues:

• It is not clear whether the gains accrued during a taxpayer’s transitional residence are included.

• It may not currently include gains and losses that accrued while an individual is tie-broken to another jurisdiction under a double tax agreement.

• Gains and losses that accrue in a period when another FIF calculation method is used should be excluded from the calculations under the RAM, to avoid a risk of double taxation.

We accept the concerns raised by submitters and note that the intention is not to tax those interests in the situations raised by submitters. We recommend changes to clauses 56, 62(3), and 63 to clarify and amend the proposed calculation of taxable FIF income to preclude gains and losses accrued during a taxpayer’s transitional residence, non-residence under a double tax agreement, and while they were applying a different FIF calculation method.

When a person leaves New Zealand, the bill would deem a disposal of the person’s RAM interests at market value. Submitters questioned whether the deemed disposal provisions would be workable, and suggested they might cause anomalous outcomes.

We understand that deferred realisation tax is proposed to be payable only on actual disposals within three years of a person ceasing to be a New Zealand resident. Deemed disposals would not trigger the tax. We received advice that the proposal would only apply to gains or losses accrued in New Zealand. This means the calculation of the tax payable would use the market value of the interest at the time the person departs New Zealand, not the amount received when the interest is subsequently disposed of.

We understand that the tax would be on a New Zealand tax resident’s foreign-sourced income, despite the payment not being required until they cease to be a New Zealand resident, which is allowed under section BD 1(4) of the Income Tax Act 2007 and New Zealand’s double tax agreements. We were advised that exit taxes are common in jurisdictions with capital gains tax regimes, so the proposal is not novel.

To clarify that interest and penalties would not be charged if the deferred realisation tax is deemed to arise in the year of departure, we recommend inserting new clauses 164B and 165B. These would insert new sections 120PB (Suspended recognition of income on deemed disposal of RAM interest) and 139BB (Imposition of late payment penalty when suspended recognition of income for RAM interest) into the Tax Administration Act 1994.

One submitter told us that a taxpayer should be able to continue to apply the RAM when a RAM interest later falls out of scope of RAM eligibility, such as when an unlisted share later becomes listed on a recognised stock exchange. We heard that a deemed disposal at this point, which is generally outside the taxpayer’s control, would potentially result in the same liquidity and double tax issues the proposal is addressing.

We understand that the current proposal has been designed to target shares that are illiquid because the liquidity issue is less acute for shares that can readily be sold at market value. However, we accept that this situation is different because the deemed disposal would generally be triggered by factors outside the taxpayer’s control. We are also concerned that the deemed disposal could result in a significant tax liability, creating a liquidity issue that may force the taxpayer to sell the interest to fund the tax impost. This would be at odds with the policy objective.

We recommend amending the bill so that the RAM would continue to apply to a RAM interest that no longer meets the eligibility criteria, unless the taxpayer decides to apply an alternative method. To achieve this, we recommend amending clause 51 to insert new section EX 46B(4B) (Revenue account method for previously eligible RAM interests), and amending clause 62(3) by removing proposed section EX 63(7).

We accept that deeming an acquisition of RAM interests on coming to New Zealand is not necessary given the standard calculation and time-based apportionment formulae as currently proposed. However, a deemed disposal on becoming a non-resident would be necessary for the proposed exit tax rules to work.

As a consequence of other recommended changes, we recommend removing clause 63, which proposes changes to section EX 64 of the Income Tax Act 2007. Instead, we recommend providing for a similar deemed disposal provision by inserting new section EX 56B(11B), via clause 56.

Submitters had differing views on what the default treatment for a joint venture should be. We agree with the view that the current GST rules for unincorporated bodies should apply to all joint ventures by default, with the ability for joint venturers to elect flow-through treatment. Our below recommendation to remove the concept of an “output-sharing joint venture” from the bill would achieve this result.

Clause 108 would amend section 2 of the GST Act. Among other changes, subclause (9) would insert a new definition of “output-sharing joint venture.”

Submitters told us that “output-sharing joint venture” may not adequately cover all cases and would impose compliance costs on taxpayers for them to confirm whether they fit within the definition. We heard concerns that members of output-sharing joint ventures may have no other option but to apply flow-through treatment.

We consider that the issues arising from the distinction between output-sharing joint ventures and other types of joint ventures could be addressed by removing the distinction altogether. This would simplify the proposal by ensuring that the same set of rules applies to all joint ventures and by requiring only two categories of joint venture in the legislation—“flow-through joint ventures” and “ordinary joint ventures”—instead of four. To achieve this, we recommend removing subclauses 108(3) and 108(9) from the bill.

Submitters disagreed with the proposed 21-day time frame for notifying the Commissioner of Inland Revenue of either a flow-through election or a change in the membership of a flow-through joint venture.

We recommend that the Commissioner should have the discretion to accept late flow-through joint venture elections and backdate them as appropriate. To achieve this, we recommend amending clause 128 to insert new section 57B(2B).

Clause 40 would insert new section EA 4B (Deferred tax for unlisted employee share schemes) into the Income Tax Act 2007.

Submitters identified various events that would constitute a liquidity event under this proposed new section when a shareholder would not necessarily have gained the rights to a liquid asset and therefore could not satisfy their tax liability.

We agree that a liquidity event, and the corresponding realisation of a tax obligation, should not be triggered when the shareholder does not have an asset that can be liquidated. The intention of the proposed rules is to allow shareholders to defer their tax liability until they have the means to satisfy the tax obligation, and these events would not meet the intention of the proposed rules. However, events that give the shareholder the option to liquidate their shares, even if not exercised, should remain covered as liquidity events.

We recommend amending clause 40 by inserting new section EA 4B(4B). New section EA 4B(4B) would ensure that shareholders that have a liquidity event but have not received, or become entitled to, a liquid asset would be entitled to continue to defer the taxing date until the next qualifying liquidity event.

Submitters raised a range of concerns about the payment of dividends qualifying as a liquidity event:

• The legislative definition of “dividend” in the Income Tax Act 2007 is broader than just cash dividends, so the receipt of some non-cash (therefore non-liquid) dividends would trigger a tax obligation on the employee share income.

• Employees may be unable to satisfy their deferred tax obligation when the value of the dividend is lower than the deferred tax liability.

• The dividend may not have been paid at the time it is declared, meaning the employee has not received any income to satisfy their deferred tax obligation.

• Taxing the shares at their pre-dividend value, while also then taxing the dividend itself, results in double taxation of the value of the dividend.

We agree with submitters that the current proposals would trigger tax obligations on receipt of a dividend in many situations when the taxpayer would not have the corresponding liquidity to satisfy that obligation. This is at odds with the intention of the deferral rules and would impose high costs relative to the concerns about integrity of the system. We therefore recommend that dividends be removed as a liquidity event from the proposed rules in section EA 4B.

Under the bill as introduced, only employers would be entitled to designate ESS shares as subject to the proposed deferral rules. Submitters told us it is unclear whether, when an employer issues shares to more than one employee with one issuance, the employer can designate one employee’s shares as deferred and not designate the others the same.

We understand the intention of the rules is that different ESS shares can have different designations. We therefore recommend amending clause 40 to clarify that different employees can have different ESS deferral status.

We heard from submitters that only persons residing in a property, whether as owners or tenants, should be eligible for the tax exemption on income from the residential supply of excess electricity. Many submitters expressed concern that the exemption would provide a tax advantage for landlords, allowing them to earn significant untaxed income.

We do not agree that the proposed exemption would provide a tax advantage for landlords, as they would be unable to claim deductions relating to the electricity income. However, we still recommend narrowing the exemption to only apply when the person deriving income is a resident of the dwelling (either as owner-occupier or tenant). This is because the proposed exemption, if it applied to landlords, would increase compliance costs as it would require landlords to apportion costs that relate to both the taxable rental income and exempt electricity income.

We therefore recommend amending clause 19 to insert the words “occupied as a residence by the person” into proposed new section CW 61B(2).

Te Ohu Kaimoana Trust Limited told us that a technical change is needed to the tax transitional rules in the Māori Fisheries Amendment Act. We heard that the current construction of the rules in Schedule 2, clause 7 fails to prevent a breach of shareholder continuity during Aotearoa Fisheries Limited’s restructuring as mandated by the Act. This therefore risks the loss of Māori authority credits. Te Ohu Kaimoana Trust Limited proposed an amendment to broaden the scope of clause 7 to include cancelled ordinary shares and converted income shares so that any Māori authority credits are maintained.

The tax policy approach to government-mandated restructurings that achieve wider government objectives has been to provide transitional tax relief in legislation. A key policy objective of this approach is to ensure that the reform is carried out in a tax-neutral manner without any tax costs arising solely because of the restructuring. General tax rules are expected to apply going forward.

Te Ohu Kaimoana Trust Limited is an intermediary body whose goal is to implement the final fisheries settlement with iwi for the benefit of all Māori. It has always held the shares in Aotearoa Fisheries Limited for the benefit of iwi with the purpose of distributing the settlement assets to iwi. That is, iwi have always been the economic owners of the assets and the Act facilitates the distribution of assets by transfer of legal ownership and control. The cancellation of Aotearoa Fisheries Limited’s ordinary shares by the Act should not in principle create a breach of shareholder continuity.

We agree with the submitter that a change to Schedule 2, clause 7 of the Act should be made to ensure that it includes the cancellation of ordinary shares as required by the Act. We recommend that clause 7(1) be amended so that its scope includes the cancellation of shares set out in Schedule 2, clause 2(1) and ensures the restructuring of the ownership interests does not give rise to a breach of shareholder continuity. To achieve this, we recommend inserting new clause 187B (Amendment to Māori Fisheries Amendment Act 2024) into the bill.

Section 17GB of the Tax Administration Act 1994 allows the Commissioner to collect information for a purpose relating to the development of policy for the improvement or reform of the tax system. Clause 141 of the bill as introduced would repeal section 17GB.

Clause 143 as introduced would insert new section 18HB into the Tax Administration Act 1994. New section 18HB would enable the Commissioner to disclose sensitive revenue information to other government agencies on a regular basis under a ministerial agreement, provided appropriate safeguards and transparency requirements are in place.

Clauses 152 and 153 would repeal the specific trust disclosure provisions in sections 59BA and 59BAB of the Tax Administration Act 1994.

We received many submissions for and against the bill’s proposal to repeal Inland Revenue’s powers to request tax policy information, repeal the trust disclosure rules, and to introduce ministerial agreements for information sharing. Aside from the minor amendments to clause 143 that we are recommending, we recommend, by majority, that the bill’s proposals proceed.

We were advised that the Commissioner would not have a mandatory power to require the provision of information for the sole purpose of policy development following the proposed repeal of section 17GB. This means the Commissioner would need to rely on his other information-gathering powers, such as section 17B. We consider, by majority, that these will be sufficient sources of information for future tax policy work.

We paid careful attention to privacy concerns about information shared by Inland Revenue. The bill as introduced does not raise concerns that Inland Revenue does not already manage for existing information-sharing powers.⁴ The bill would provide a quicker means of agreeing information sharing. We recommend minor amendments to new section 18HB(3)(a), which would be inserted by clause 143, to align the bill with the Privacy Act 2020.

Following the proposed repeal of the trust disclosure rules, we consider that the Commissioner will have sufficient powers to request information necessary to administer the trust tax rules.

The bill as introduced proposes a number of remedial amendments that would allow employers to treat certain types of gift cards (sometimes referred to as “open loop cards”)⁵ provided to employees as subject to fringe benefit tax rather than PAYE. The bill would introduce a generic gift card definition and a gift card fringe benefit.

Based on feedback from submitters and officials, we recommend the following minor amendments:

• Amending the definition of “gift card” to include cards that are “used to purchase goods and services” to ensure that both open and closed loop cards are included in the definition (clause 95(12)).

• Replacing the “in lieu of remuneration” requirement with a targeted “purpose or effect of defeating the application of the Child Support Act 1991” (clause 21).

• Modify the treatment of gift cards to better align with current unclassified benefits (clauses 21B and 86).