NEW ZEALAND Trends and Developments Contributed by: Greg Neill, Fred Ward and Callum Burnett, Russell McVeagh
foreign investment in privately-owned infrastructure projects in New Zealand. New Zealand’s thin capitali - sation rules are designed to limit the amount of debt that foreign-owned entities can use to fund their New Zealand operations, by effectively reversing interest deductions where an entity’s level of debt exceeds prescribed thresholds (generally 60% of the overall assets and 110% of the debt levels of the worldwide group). The consultation paper identifies concerns that the current 60% safe‑harbour ratio may be too restric - tive for capital‑intensive projects that rely heavily on third‑party, limited‑recourse debt and that do not qualify for an existing “public-private partnership” exemption (generally only available for specified public-private co-investments). Reform is intended to facilitate greater foreign participation in privately- owned infrastructure projects in New Zealand and ensure that the tax settings do not impose unintended barriers to financing these projects. The issues paper outlines two possible reform path - ways: • First, a rule targeted at infrastructure projects that would effectively extend the existing public-private partnership concession to privately-developed infrastructure projects. Under the current conces - sion, higher levels of debt are permitted for quali - fying projects, provided the debt is third-party, limited recourse debt. The proposed approach would make a similar concession available to infrastructure projects that are privately owned and developed, but which do not fall within the current rules. • Alternatively, a more general rule under which inter - est would be fully deductible where the relevant debt meets specified criteria. The consultation paper indicates that such criteria could include requirements that the debt is advanced by an unre - lated third-party lender and is used exclusively to fund commercial activities in connection with New Zealand. Other requirements proposed include limiting recourse to the New Zealand assets of the borrowing entity and restricting access to the concession to borrowers that are New Zealand residents.
Submissions on the proposals closed in June 2025; however, Inland Revenue has indicated that consul - tation on the issues is ongoing, with further develop - ment required before any legislative changes are pro - gressed. In any event, the Government has allocated NZD65 million over four years to support rule changes arising from the review. In December 2025, Inland Revenue released a con - sultation paper proposing targeted reforms to the tax treatment of shareholder loans made by New Zea - land resident companies to individual shareholders. The main proposal seeks to treat new loans made to such shareholders as dividends if the loans are not repaid within a specified statutory repayment period. A NZD50,000 de minimis threshold has been sug - gested to exclude small-value loans from compa - nies to shareholders to ensure that compliance is not overly burdensome. Existing loan balances would not be subject to the new rule unless materially varied, although they would count towards the de minimis threshold. Looking Forward Shareholder loans Officials have also proposed a complementary rule to tax any outstanding shareholder loan balances at the time a company is removed from the Companies Reg - ister. This is intended to provide a clear and enforce - able point at which income arises. The initial consultation on these proposals has only recently closed, and the reforms remain at an early stage of policy development. Further consultation and refinement is expected before any legislative changes Tax policy continues to be a prominent feature of New Zealand’s political environment as the country moves towards a general election in November 2026. New Zealand does not have a comprehensive capital gains tax, and debate over the enactment of a capital gains tax is not an uncommon feature of New Zealand election cycles. Notwithstanding the lack of compre- hensive capital gains tax, certain gains traditionally regarded as capital may be brought to tax under the existing rules by treating these amounts as income. are progressed. Capital gains tax
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