EY Tax Monthly News Update – Edition 5, 2025

EY Tax News Update: Edition 5, 2025

Welcome to the latest edition of EY’s tax news. This edition covers key tax developments for May 2025. You can also find details of upcoming EY Global webcasts, along with links to EY insights.

In brief

Inland Revenue updates

• Don’t miss your chance to have your say on current draft consultation items:
  • GST listed services rules
  • Mutual transactions of associations (including clubs and societies)
  • Whether money or property received by New Zealand tax residents from overseas is income from a foreign trust
  • Tax on fees paid to a member of a board, committee, panel, review group or task force
  • Public advice and guidance work programme
    

• Stay on top of new finalised guidance:
  • Interpretation Statements: arrangements involving tax losses carried forward under the business continuity rules; look-through companies and disposal of residential land under the bright-line test; tax residence
  • Questions We’ve Been Asked: several items relating to the land sale rules; how the bright-line rollover relief provisions apply to transfers of residential land between associated persons; how the income tax rules apply when a close company provides short-stay accommodation
  • Technical Decision Summaries: source of income and foreign tax credits; deductions, zero-rating and shortfall penalties; deductions and shortfall penalties; land transferred within a consolidated tax group
  • Other items: National Average Market Values of Specified Livestock Determination 2025; Product Ruling
    

• Other updates, including increased compliance focus on the property sector

Government and other updates

• Budget 2025 and Investment Boost
• Consultation on changes to thin capitalisation settings
• Digital Services Tax Bill not proceeding
• Economic update
• Other updates
  

International updates

• Australia, including 2025 federal election
• OECD publication
  

EY Global webcasts

• How tariffs impact supply chains in the industrial and energy sector

EY insights    

• Tax Guides – various tax matters covering over 150 jurisdictions
• Report on recent US international tax developments – 22 May 2025
• Closing New Zealand’s AI opportunity gap
• How do CEOs chart a path to growth when the map keeps changing?
• The five habits of successful Geostrategists
  

Current draft consultation items

New finalised guidance

Inland Revenue guidance items finalised since our last update include:

Other updates

Other Inland Revenue updates include:

• One of the focus areas of the increased compliance funding received by Inland Revenue in last year’s Budget is the property sector. Inland Revenue has been looking at the tax affairs of developers, those with rental properties, and people covered by the bright-line test. More than $150 million in undeclared income tax and GST from the property sector has been uncovered by Inland Revenue during the first nine months of the current financial year, which is almost the same as the amount for the whole of the 2023-24 financial year. Refer to the Inland Revenue media release here for further details.
• Inland Revenue has published some commentary explaining the changes in the Taxation (Annual Rates for 2024-25, Emergency Response, and Remedial Measures) Act 2025, available on Inland Revenue’s Tax Policy website here.
• An Inland Revenue media release notes the fifth anniversary of the Small Business Cashflow (Loan) Scheme has now passed, with many loans now reaching the due date for repayment.
  

Budget 2025 and Investment Boost

On 22 May 2025, the Government delivered the 2025 Budget, which includes several key tax announcements. Some of the reforms have already been enacted with the passage of the Taxation (Budget Measures) Act 2025. The remaining reforms are expected to be introduced into draft legislation later this year and enacted by 31 March 2026. In some cases, application dates for the reforms could be made retrospective.

Investment Boost

The key tax measure announced in Budget 2025 is “Investment Boost”, which allows an accelerated depreciation deduction of 20% of the tax book value of new assets in the year of acquisition. This change has been enacted and applies for new assets acquired from 22 May 2025.

The 20% upfront deduction reduces the cost base, but ordinary depreciation is claimable for the remaining 80% value, including in the year of acquisition. Claiming Investment Boost is optional, on an asset-by-asset basis.

To be eligible, assets must be brand new, new in use or new to New Zealand. In addition, assets must generally be depreciable for Investment Boost to apply. However, the reform specifically includes commercial and industrial buildings as well as certain other assets and improvements. Residential property and fixed-life intangible property are excluded.

For assets acquired and used in undertaking research and development (R&D) activities, both the 20% deduction and standard depreciation are eligible expenditure under the R&D Tax Incentive, potentially giving businesses an additional cash-flow boost.

Investment Boost is likely to be welcome news to many taxpayers. Various practicalities will need to be worked through, such as how to account for Investment Boost within fixed asset systems. Potential impacts on provisional tax obligations and financial reporting may also need to be considered.

Other Budget measures

Other tax-related aspects of Budget 2025 include:

• Additional funding for Inland Revenue compliance and debt management activity: Additional funding for Inland Revenue is perhaps unsurprising and means the recent trend of increased compliance activity is set to continue. Budget 2025 forecasts show that Inland Revenue is expected to deliver an 8:1 return on investment from audit, compliance review and debt collection activities.
• KiwiSaver reforms: Including increasing the minimum contribution for both employees and employers to 3.5% from 1 April 2026 and 4% from 1 April 2028, and reducing the Government subsidy for most savers.

The Government has also confirmed its intention to progress reforms to the:

• Fringe Benefit Tax (FBT) settings, including for the taxation of motor vehicles: Following earlier consultation, the Government has committed to progressing reforms to address concerns with existing FBT settings and to refocus the FBT system on taxing benefits that are provided as remuneration to employees.
• Thin capitalisation settings: A new consultation proposes changes aimed at boosting foreign direct investment in New Zealand, particularly for infrastructure projects. See further below.
• Taxation of certain employee share schemes for the start-up sector: Further to earlier consultation, the Government has committed to progressing reforms to allow an optional deferral for certain employee share schemes to assist the start-up sector to attract and retain talent.

A more detailed summary of the key tax aspects of Budget 2025 can be found in the EY Global Tax News Alert here. For further information on Investment Boost or other tax announcements in the Budget, please reach out to your usual EY tax advisor.

Consultation on changes to thin capitalisation settings

Budget 2025 confirms the Government’s intention to progress reforms to the thin capitalisation regime.

Consultation is currently open, with feedback sought on whether the current thin capitalisation settings might be discouraging foreign investors from investing in infrastructure projects in New Zealand. Reforms are being considered that could allow additional interest deductions for qualifying projects. In particular, two possible solutions are proposed to address the potential issue:

• A rule targeting infrastructure projects: This rule would allow interest on third-party limited-recourse debt for “eligible infrastructure projects” to be fully deductible (what is meant by “infrastructure” remains to be determined).
• A more general rule focusing on arrangement type: This rule, focusing on the type of arrangement (e.g., third-party debt), is not necessarily limited to infrastructure projects and would apply as an alternative test to existing thin-capitalisation thresholds.

The consultation document is available on Inland Revenue’s Tax Policy website here, with submissions closing on 19 June 2025. It is possible that any resulting changes could be introduced in legislation later this year.

Digital Services Tax Bill not proceeding

The Government has decided not to progress draft legislation that would have introduced a Digital Services Tax (the DST Bill). Broadly, if enacted the DST Bill would have imposed a flat 3% digital services tax on the gross “taxable digital services” revenue of large multinational entities where that revenue was attributable to New Zealand users or New Zealand land (subject to certain criteria and exclusions).

The previous Government introduced the DST Bill in 2023 with an original proposed start date of 1 January 2025 (with legislative flexibility to defer the start date by up to five years to 1 January 2030). The DST Bill was intended to serve as a backstop if an acceptable multilateral solution could not be implemented within a reasonable timeframe.

Following the 2023 General Election, the current Government reinstated the DST Bill, however it remained unenacted before Parliament. On 20 May 2025, Minister of Revenue, Hon Simon Watts, announced in a Beehive release that the Government has been monitoring international developments and has now decided not to progress the DST Bill.

Refer to the EY Global Tax News Alert here for further information.

Economic update

Treasury has published the Interim Financial Statements of the Government for the nine months ended 31 March 2025. Key figures include:

• Tax revenue of $89.5 billion, which was $0.2 billion (0.2%) higher than forecast.
• Operating balance before gains and losses (excluding ACC) deficit of $6.6 billion, which was $0.5 billion less than the forecast deficit.

Refer to the Treasury media release here for more information.

For a further more detailed update on how the economy is tracking, see the Budget Economic and Fiscal Update 2025, released by the Treasury as part of Budget 2025.

Other updates

Other updates include:

• As part of a Beehive release on the KiwiSaver changes in Budget 2025, Minister of Finance Nicola Willis stated that “The Government is working to reduce barriers that may stand in the way of KiwiSaver funds investing in a wider range of New Zealand businesses, assets and infrastructure.” Changes to barriers on how KiwiSaver funds can invest their money could therefore be on the horizon.
• As announced during Budget 2025, consultation has opened on proposals for improving Working for Families (WFF), with the intention of making WFF more accurate and helping to prevent families going into debt. Submissions can be made until 3 July 2025, with the Government discussion document available on Inland Revenue’s Tax Policy website here.
  

Australia

Updates from Australia include:

• While final counting is still ongoing, it appears clear that the Labor Party has won the 2025 federal election and returns as a majority government. You can view the results of the election on the Australian Electoral Commission website here.
• The Australian Tax Office has updated its website guidance on administration of Australia's Pillar Two global and domestic minimum tax rules – refer to the EY Global Tax News Alert here.

OECD

The OECD has published a Consolidated Commentary providing guidance on the interpretation and application of the Global Anti-Base Erosion (GloBE) Rules. The Consolidated Commentary incorporates Agreed Administrative Guidance released by the Inclusive Framework from March 2022 - March 2025. See: OECD (2025), Tax Challenges Arising from the Digitalisation of the Economy – Consolidated Commentary to the Global Anti-Base Erosion Model Rules (2025): Inclusive Framework on BEPS, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, available on the OECD website here.

How tariffs impact supply chains in the industrial and energy sector – register here

Refer to the below guides, thought leadership articles and regular newsletters available on ey.com:  

• Tax Guides – browse our in-depth guides covering corporate tax, indirect tax, personal taxes, transfer pricing and other tax matters in more than 150 jurisdictions
• Report on recent US international tax developments - 22 May 2025
• Closing New Zealand’s AI opportunity gap
• How do CEOs chart a path to growth when the map keeps changing?
• The five habits of successful Geostrategists

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