Budget 2026 - Limited Tax Changes

Rather than introducing broad business tax reforms or changes to GST, the New Zealand Budget delivered on 28 May 2026 focused on a series of targeted tax measures. Inland Revenue says the Budget measures are aimed at “supporting growth, simplifying rules and upholding the integrity of the tax system,” and notes that many of the proposals may still change as they go through the parliamentary process.

In most, but not all instances, the changes are expected to be implemented either next or the following financial year.

Changes did occur to Working for Families. These changes are summarised in the tables at the end of this article.

Business Tax Changes after May 2026 Budget

Area	Main change	Timing
FBT - Motor vehicles	FBT for employer-provided vehicles would move from day-counting/logbook-style availability rules to a category approach based on the type and extent of private use. Proposed inclusion rates include 100%, 35%, 20% and 0%, depending on category. New motor vehicle valuation rates would also apply, with different rates for standard, hybrid and EV vehicles.	Benefits provided after 1 April 2027.
Company loans to shareholders	Outstanding loans from a company to a shareholder, director, or close relative would be treated as taxable income of the borrower six months after the company is removed from the Companies Register, if still unpaid. This includes overdrawn shareholder current accounts.	Applies to companies removed from the register on or after 4 December 2025.
IR debt/compliance funding	Budget 2026 also funds a further $15m per annum for Inland Revenue debt compliance activity, with expected net revenue of $120m over the forecast period. This is not a new tax, but it matters for clients with arrears or weak tax governance.	Ongoing Budget funding. (But noticeable ongoing significant investment in this area over the past three years).
R&D Tax Incentive	RDTI changes would introduce in-year quarterly payments to improve cashflow, give IR more flexibility to accept/amend late or minor-error RDTI filings, expand eligible mining R&D expenditure, and reduce the internal software expenditure cap from $25m to $3m per year.	Most from 2027–28 income year; some admin flexibility from 1 April 2027.
FIF rules	FIF changes include expanding the revenue account method for unlisted foreign shares to all NZ residents, extending it for some residents facing concurrent foreign taxation, increasing the FIF de minimis threshold from $50,000 to $100,000, preserving access to the attributable FIF income method where founders/active investors dilute below 10%, and clarifying the 10-year FIF exemption for offshore listings/corporate migrations.	From 1 April 2026 for the 2026–27 tax year.
Financial arrangements / migrant foreign-currency issues	Proposed changes would reduce the effect of unrealised FX movements on certain foreign-currency financial arrangements, include special rules for some cross-border double-tax cases, introduce an Active Investor Plus visa calculation method, and remove some low-risk personal foreign-currency arrangements from the financial arrangements rules.	Generally 1 April 2027; Active Investor Plus changes backdated to 1 April 2025
NRCT modernisation	Non-resident contractors’ tax threshold would increase from $15,000 to $75,000 over 12 months. The rules would use a “single-payer” view, exclude certain low-risk entities, and introduce a bespoke NRCT tax code in PAYE.	1 April 2027.
Aircraft dry leasing	Payments for using aircraft or aircraft parts in NZ under a dry lease would no longer be subject to NRCT, and the income would be tax-exempt for the overseas lessor. This is a targeted aviation/aircraft leasing change.	1 April 2026.
Foreign-owned banking groups	Thin capitalisation minimum equity settings for foreign-owned banking groups would increase from 6% to 12% for groups including a domestic systemically important bank, and 11% for other groups.	1 April 2027.
Prudential levy	A new levy would apply to banks, non-bank deposit takers, insurers and financial market infrastructure providers to help fund Reserve Bank regulation and supervision. It is estimated to recover about $209m over four years.	Consultation after Budget; Cabinet decisions targeted for early 2027, with introduction around mid-2027.

Charities and Not-for-Profits - Tax changes from 2026 Budget

A key practical point for charities is that the Government has not announced a broad removal of the charitable sector’s income tax concessions in this Budget package. Instead, the changes focus on integrity, donor credit caps, small-NFP simplification, trust allocation timing, non-resident charities, and donor/volunteer administration. The Government’s charities release says the 2025 work on limiting access to charitable tax concessions is now complete, and lists the Budget 2026 measures above.

Area	Main change	Timing
Donation tax credit cap	Donations eligible for the individual donation tax credit would be capped at the lower of $100,000 or the donor’s taxable income. The 33⅓% credit rate remains, so the maximum annual credit would be $33,333.33.	Donations made on or after 1 April 2027.
Membership subscriptions and levies	Membership subscriptions and levies received by taxable NFPs would remain non-taxable, preserving the current practical treatment.	Generally 1 April 2027.
Small NFP tax-free threshold	The effective tax-free threshold for smaller taxable NFPs would increase from $1,000 to $10,000. NFPs with income over $10,000 would not qualify for this threshold.	2027–28 income year.
Filing exemption for small taxable NFPs	Taxable NFPs with income of $10,000 or less would not have to file an annual income tax return unless IR asks them to, although they could still file voluntarily, for example to preserve losses.	2027–28 income year.
Interest reporting for RWT-exempt customers	Financial institutions would have to provide IR with interest income information for RWT-exempt customers, to help IR monitor eligibility for the new NFP threshold and filing rules.	1 April 2028.
In-year donation tax credit refunds	Individual donors with reportable income could opt to receive donation tax credit refunds during the year through myIR, rather than waiting until year-end. This would be limited to one-third of reportable income at the time of the claim.	1 April 2028.
Donating the tax credit refund back to the charity	Donors could elect for IR to transfer their donation tax credit refund directly to the charity they supported. Charities would need a nominated IR bank account; the transferred refund would not itself qualify for another donation tax credit.	1 April 2028.
Volunteer honoraria	NFPs could choose to treat volunteer honoraria as salary or wages rather than schedular payments, simplifying PAYE/ACC treatment.	1 April 2028.
Non-resident charities	The income tax exemption for NZ-sourced non-business income of non-resident charities with no NZ charitable purpose would be repealed. They may instead face NRWT on NZ-sourced passive income, with a 2% approved issuer levy option for qualifying interest.	1 April 2028.
Trust allocations to tax-exempt beneficiaries	Private trusts allocating beneficiary income to tax-exempt beneficiaries, such as registered charities, would need to actually pay the money within a specified period. If not, the amount would be taxed at the trustee rate.	2028–29 income year.

Working for Families - Tax Changes from 2026 Budget

In-work tax credit	The Government has included a temporary $50 per week increase to the In-work Tax Credit as part of its Budget 2026 fuel response. The maximum annual amount increases from $5,070 to $7,670 for eligible families.	Applies from 1 April 2026 to 31 March 2027, unless the price of 91 octane petrol falls below $3 per litre for four consecutive weeks before then. Existing eligible recipients receive the increase automatically.
Family scheme income	The calculation of family scheme income will be simplified by removing several income adjustments that are infrequently used and considered low integrity risk. These removed amounts will no longer affect a person’s income for Working for Families purposes.	Applies from 1 April 2027 for the 2027–28 and later tax years. For many families, this should mean fewer adjustments to consider when applying for, or re-estimating, Working for Families.
“Other payments” adjustment	The “other payments” adjustment will remain, but the de minimis threshold will increase from $5,000 to $8,000. This means families receiving up to $8,000 a year in support for day-to-day living costs, such as help from family with groceries, will no longer need to include those amounts in family scheme income.	Applies from 1 April 2027. This should reduce compliance requirements for families receiving modest informal support.
Ability to reintroduce adjustments	If a removed income adjustment later becomes a higher integrity risk, it may be added back into the rules from the start of a future tax year by Order in Council.	This is intended to simplify the current rules while allowing Inland Revenue to respond if future avoidance or income-channelling risks emerge.
Residence requirements	The Working for Families residence test will no longer be based on tax residence. Instead, the principal caregiver and dependent child will need to be physically present and ordinarily resident in New Zealand, and either the caregiver or the child must be a New Zealand citizen or hold a residence class visa.	Applies from 1 April 2027. The new test should be easier for families to understand and for Inland Revenue to administer.
Overseas travel	Families will be able to travel overseas for up to six weeks, or 42 days, at a time without losing Working for Families eligibility and without needing to notify Inland Revenue. Longer absences may still be covered in specified situations, such as school trips, family emergencies, or delays caused by natural disasters or similar crisis events.	Applies from 1 April 2027. For anyone already overseas before that date, the 42-day period starts counting from 1 April 2027.
Notices of entitlement and administration	Inland Revenue expects the new family scheme income rules to be reflected in notices of entitlement issued ahead of the 2027–28 tax year. Families who previously declared removed adjustments may see those adjustments no longer appear.	Guidance is expected before the 2027–28 notices are issued. Clients should check their notices carefully once the new rules are reflected.
Related income tests	The family scheme income changes may have minor flow-on effects for some related assessments, including the Student Allowance parental income test, Community Services Card income test for low-income earners with dependent children, and the Young Parent Payment parental income test.	Expected to affect only a small number of people, but worth noting where clients interact with these other support settings.

Our Conclusion

Overall, the May 2026 Budget does not introduce sweeping tax reform for businesses, charities, or not-for-profit organisations. Instead, the changes are more targeted, with a focus on simplifying some rules, tightening others, and improving Inland Revenue’s ability to administer the tax system.

For many organisations, the immediate impact is likely to be limited, particularly as several measures do not take effect until 2027 or 2028 and remain subject to legislation. However, the changes are still worth being aware of, as they may affect future planning, compliance obligations, and the way certain arrangements are managed.

If you hadn't made the connection IR have been gearing up over the last three years with respect to IR debt/compliance funding. If you want some confidence that your record keeping meets your IR obligations or you'd like to modernise how you manage your records, please reach out to us.

We will continue to monitor these developments as the proposals progress and will advise clients where any changes are likely to have a practical impact.

If you are wanting to be proactive and want to start identifying whether any of the changes could affect your operations, structures, systems, or future planning please get in touch with us.

Disclaimer: The information provided in this article is general in nature and does not constitute personalised tax advice. You should consult with Business Studio before making decisions based on this content.