Significant tax reforms proposed: FIF rules, remote workers and employee share scheme tax deferral

The Bill also proposes a long-awaited option to defer the taxing point for employee share scheme (ESS) benefits offered by unlisted companies, and a range of other policy or remedial changes.

FIF rules
The existing methods for calculating FIF income can create valuation, liquidity and double taxation challenges. These challenges disincentivise would-be migrants with FIF investments from coming to New Zealand.

To mitigate some of these issues and to encourage migrants to come to New Zealand, the Bill proposes a new method for calculating income from eligible FIF investments for recent and new migrants, known as the “revenue account method” (RAM). The RAM operates in a similar manner to a realised capital gains tax on eligible FIF investments, which is a method of taxation that many recent and new migrants are relatively familiar with. From 1 April 2025, eligible persons will be able to elect (on an all of portfolio basis) to apply the RAM to eligible FIF investments.

Under the RAM, gains made on the disposal of eligible FIF investments are discounted by 30%, and the discounted gain is then taxed by the relevant marginal tax rate. This produces an effective tax rate of 27.3% for a taxpayer who is on the highest marginal tax rate of 39%. Dividends are taxed at the person’s marginal tax rate, although without any discount, in the tax year in which the dividend is paid. Losses on disposal of eligible FIF investments are discounted by 30%. The discounted losses are ring-fenced so that they can only be set off against gains on disposal under the RAM. Excess losses on disposal can be carried forward.

Who is eligible for the RAM?  

Access to the RAM is restricted. Only the following taxpayers, known as RAM taxpayers, can apply the RAM: 

• Individuals who became a New Zealand tax resident that is not a transitional resident on or after 1 April 2024. The individual must have been non-resident for at least five years before becoming a New Zealand tax resident. This category will capture certain new migrants who are already tax residents, provided their transitional residence period ends on or after 1 April 2024.
  
  
• A family trust whose principal settlor meets the criteria outlined above. This test is applied once at the time the trust chooses to apply the RAM. The trust would remain eligible even if the principal settlor’s eligibility changes in the future. 

In addition to the above, the Bill also proposes a separate category of taxpayers called “extended RAM taxpayers”. Extended RAM taxpayers have more freedom to apply the RAM method than ordinary RAM taxpayers (refer below). Extended RAM taxpayers are those who meet the criteria to be ordinary RAM taxpayers, and who are:

• Individuals who are concurrently liable to tax in another country on the disposal of those shares on the basis of their citizenship or a right to work and live in that country. This only applies where the jurisdiction has a Double Tax Agreement (DTA) with New Zealand.  Practically, this category will apply to US citizens and green card holders.
  
  
• A family trust whose principal settlor meets the criteria outlined above. If the principal settlor subsequently loses their eligibility, the trust may transition out of the extended RAM regime to the ordinary RAM regime. Practically, this category will apply to trusts that have a principal settlor who is a US citizen or green card holder.  

What FIF investments are eligible? 

For ordinary RAM taxpayers (that is, those who are not extended RAM taxpayers), the RAM applies to investments held by them that are “RAM interests”. Whether an investment is a RAM interest can depend on when it was acquired, and the nature of the investment.  
Shares in foreign companies will be RAM interests if:

• They were acquired by the person before they became a New Zealand tax resident (including before they became a transitional resident) and:
  
  
• The shares meet all of the following criteria:

• • the share is not listed on a stock exchange;
    
    
  • there is no redemption facility for market value in relation to the share; and
    
    
  • the share is not in an entity that derives 80% or more of its value from shares that are not eligible under the above two bullet points. 

Shares acquired while a person is a New Zealand tax resident may be eligible if they were acquired as a result of arrangements entered into before the person became a New Zealand tax resident.

For extended RAM taxpayers, the class of FIF interests that are eligible for the RAM is wider. Extended RAM taxpayers can apply the RAM to all of their FIF interests, regardless of when they were acquired and the nature of those FIF investments. Specific rules apply to extended RAM taxpayers who become ordinary RAM taxpayers (for example, due to a taxpayer renouncing their US citizenship and ceasing to be liable to tax in the US on the basis of citizenship).

Election

A RAM taxpayer would elect to apply the RAM in the first year that they have FIF income. If the person does not make an election, the fair dividend rate method will apply to the shares by default.

A RAM taxpayer who elects to apply the RAM may subsequently elect out of the RAM and use one of the current FIF income calculation methods. The election to apply a different calculation produces a deemed disposal at market value of all shares that the RAM has been applied to. Once one of the existing methods is applied, whether by default or election, the person cannot subsequently elect to apply the RAM in the future.

Cost base

It is proposed that RAM taxpayers obtain a market valuation as at the date on which the RAM is first applied to the shares. The valuation must be obtained by the later of:

• 12 months from the date of acquisition or when the FIF rules start to apply to the person (whichever is the later); and
  
  
• The due date of the person’s first return in which they apply the RAM.

The RAM taxpayer is allowed to use a time-based apportionment method if market value cannot be determined other than by obtaining an independent valuation and the person chooses not to get one.

Exit tax

When a RAM taxpayer leaves New Zealand, they are deemed to dispose of all RAM interests for market value immediately before they become a non-resident.  If those RAM interests are disposed of within three years of becoming a non-resident, the person would continue to be subject to New Zealand income tax on the disposal under the RAM.

Non-resident visitors

Income tax – tax residency 

New Zealand’s current tax residency settings may discourage remote-working visitors from staying in New Zealand for as long as they would like, under the terms of their visitor visa.  

The proposal is to “switch off” the 183-day test for “non-resident visitors”, while the permanent place of abode test would continue to apply. Non-resident visitors would be deemed to be non-resident for New Zealand income tax purposes for up to 275 days in any 18-month period, provided that the non-resident visitor is:

• Not a New Zealand tax resident or transitional resident immediately before becoming a non-resident visitor;
  
  
• Not undertaking work in New Zealand for a New Zealand resident or a New Zealand branch of a non-resident, offering goods and services in New Zealand for income from persons or businesses in New Zealand, or requires the person to be physically present in New Zealand;
  
  
• Not receiving a family scheme entitlement (and neither was their spouse, civil union partner or de facto partner);
  
  
• Lawfully present in New Zealand under the Immigration Act 2009; and
  
  
• Tax resident in a country or jurisdiction that imposes a tax that is substantially the same as New Zealand income tax. 

The proposed amendments for non-resident visitors would only apply to persons who arrive in New Zealand on or after 1 April 2026 and would not apply to persons physically present in New Zealand prior to that date.

On ceasing to be a non-resident visitor and while lawfully remaining in New Zealand, the person would become subject to the current tax residency rules on the date of cessation, on a prospective basis.  

Income tax – employment and professional services income

Personal or professional services income derived by a non-resident visitor from services performed for, or on behalf of, a non-resident are generally proposed to be exempt from New Zealand income tax.
 
The New Zealand tax treatment of other New Zealand sourced income derived by a non-resident visitor is otherwise unaffected and continues to be subject to the current tax rules.
  
Income tax – associated entities

The activities of a non-resident visitor in New Zealand would be disregarded when determining whether a non-resident enterprise has a taxable presence (i.e., tax residency, a permanent establishment or a fixed establishment) in New Zealand.

The presence of a non-resident visitor in New Zealand who is a settlor, trustee or beneficiary of a trust should not change the New Zealand tax treatment of the trust or the income it derives.
 
Goods and services tax (GST)

Non-resident visitors who only make certain zero-rated supplies to non-residents can choose not to register for GST to minimise compliance costs. Non-resident visitors could still elect to GST register to recover input tax. 

ESS rules

For shares issued or transferred to employees on or after 1 April 2026, the taxing point for ESS benefits for employees in unlisted companies may be deferred until a “liquidity event” occurs. A liquidity event would occur on the earliest of the date the company is listed, the date on which the shares are sold or cancelled, or the date before the ex-dividend date. The deferral of the share scheme taxing date (SSTD) would not be mandatory and would be at the discretion of the employer. The employer is required to notify the Commissioner and the employee of the election at the time of issue, or transfer, of the shares by designating the offered shares as “employee deferred shares”. The election can be made on an employee-by-employee basis.
        
With effect from 1 April 2026, the taxing point would also arise where the ESS beneficiary has an unconditional right to presently receive the shares. This may be the case where the ESS beneficiary meets all the criteria to receive the shares, but the employer has not yet transferred those shares because for example, the employer needs to issue new shares to transfer to the employee.

There is currently no specific legislative rule governing the timing of expenditure or loss incurred by an employer for the purposes of the ESS rules. From 1 April 2026, an amendment would deem the expenditure or loss to be incurred on the SSTD. This is a departure from the Commissioner’s prior interpretation which generally deemed the expenditure or loss to be incurred on the ESS deferral date. It will be important to factor in the exact timing of the SSTD in the context of a sale and purchase of the employer company to determine whether the deduction arises for the benefit of the vendor or purchaser. 

Other changes

The Bill proposes several other significant changes:

• From 1 April 2026, output-sharing joint ventures will automatically have GST flow-through treatment which will allow members to elect to individually account for GST on supplies made or received in the course of the joint venture in their own GST returns. Other joint ventures would, by default, continue to apply the current unincorporated body rules, but could elect to have flow-through status by agreeing in writing and notifying the Commissioner using a prescribed form.
  
  
• With effect from 1 April 2026, SaaS contracts are not subject to NRCT, except to the extent to which the service involves infrastructure or personnel located in New Zealand.
  
  
• Open-loop gift cards (such as Bonfire and Prezzy cards) provided to employees are proposed to be subject to FBT rather than PAYE, for benefits provided on or after 16 April 2025.
  
  
• The current thresholds for a cash basis person (who return income or expenditure under a financial arrangement on a cash, rather than accrual basis), which have not been adjusted since 1999, are proposed to increase for the 2026/27 and later income years.
  
  
• From the 2026-27 and later income years, amounts derived by natural persons from the sale of electricity to an electricity retailer generated from a dwelling is exempt income. Such persons would no longer be entitled to claim deductions in relation to the sale of that electricity.   

If you have any questions about this article, please get in touch with the contacts listed or your usual Bell Gully adviser.

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Disclaimer: This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.