Tax Talk: FBT rate rises, mileage gets a rethink and residency stays grey

Nevertheless, there are a few minor areas of interest that we outline below: 

FBT prescribed rate of interest going up

The Fringe Benefit Tax (FBT) prescribed rate of interest will be increasing from 5.77% to 6.07%, effective from 1 October 2026. This rate is used as a proxy for market interest to determine: Whether an employer is charging a rate of interest that is below the market rate for an employment-related loan, and the value of a deemed dividend arising on loans from companies to their shareholders. 

Legislative change earlier this year means Inland Revenue can now automatically change the FBT prescribed rate of interest (among other rates) within specific parameters, which in this case is the Reserve Bank of New Zealand “floating first mortgage new customer housing” interest rate. 

Inland Revenue relooking at mileage rates 

In June, Inland Revenue released the mileage rates for the 2025-26 year. It is acknowledged that these rates are also used by employers as a reasonable estimate of expenditure incurred by employees when providing reimbursements for the business use of private motor vehicles. 

Given the sustained high petrol prices, Inland Revenue is considering potential further guidance to help ensure that employees are appropriately reimbursed. 

If you are considering reimbursing employees for the business use of private motor vehicles, either through payment of an allowance or through periodic reimbursement, please contact your Baker Tilly Staples Rodway tax advisor. 

Tax pooling pilot scheme – final call 

Earlier this year, the government introduced legislation enabling taxpayers who had outstanding income tax balances in relation to the 2023 and 2024 income years to be able to purchase the outstanding amounts from tax pooling intermediaries, thereby benefitting from reduced penalty and interest exposure. It is hoped this pilot scheme will reduce the outstanding tax balance, which currently stands at more than $9 billion. 

To benefit from the pilot scheme, taxpayers must enter into an arrangement with a tax pooling intermediary such as Tax Traders by 30 September 2026, with the amount to be settled by 30 September 2027. Specific terms and conditions must be met, including all outstanding tax returns having been filed, and being up-to-date with payments in other tax accounts. If this pilot scheme is of interest, please contact your Baker Tilly Staples Rodway tax advisor, who will be able to provide you with guidance. 

Active Investor Plus visa holders and tax residency 

With recent changes to the Active Investor Plus (AIP) Visa, including the ability to purchase a residential home with a value of NZ$5 million or greater, there has been keen interest from high-net-worth individuals looking to make New Zealand home.

The change around purchasing a residential home has raised queries about whether AIP Visa holders could become New Zealand tax resident under the “permanent place of abode” test. Inland Revenue has issued a “Questions we’ve been asked” on the topic and its view is that property-owning AIP Visa holders can become New Zealand tax resident under the permanent place of abode test, provided the house is a place where they habitually reside from time to time, on an enduring rather than temporary basis, even if they spend periods overseas. 

One of the key pitfalls exposed by the draft guidance is where someone travels to New Zealand for several months each year and regularly stays in a house which they have purchased and made available exclusively for their use. This can particularly cause problems for individuals who may call other countries home but have created a New Zealand tax presence. Having a permanent home in another country does not mean that a permanent place of abode cannot be established in New Zealand. 

Some had hoped Inland Revenue would introduce a practical brightline-style test for how long a person who owns a New Zealand residence could spend in New Zealand every 12 months before creating a permanent place of abode, but it has not done so. Instead, this document repeats existing principles, provides examples and then concludes whether each gives rise to a permanent place of abode in Inland Revenue’s view. While this has some value, it can still be a grey area. For uncertain cases it is expected AIP investors wanting to buy a home will prefer an Inland Revenue binding ruling to provide certainty, and we have obtained a number of these for our clients. 

Immigration to New Zealand comes with many tax opportunities and pitfalls, and if you are looking to migrate to New Zealand, we recommend contacting your Baker Tilly Staples Rodway advisor first to ensure you don’t fall victim to the tax pitfalls. 

New double tax agreement with the United Kingdom on the way 

The governments of the United Kingdom and New Zealand have signed a new double tax agreement which, once ratified, will replace the existing double tax agreement that was signed in 1983 and came into force in 1984. 

The new agreement does not pose significant changes for most taxpayers. Some of the key differences are: 

• Building sites and construction/installation projects give rise to a permanent establishment after six months instead of the previous 12.
• A deemed permanent establishment arises for services performed through an individual.
• A more nuanced dividends article, which includes 0% and 5% Non-Resident Withholding Tax (NRWT) rates paid to certain corporates and government bodies. 

Broadly, this means the United Kingdom double tax agreement will be consistent with more recent double tax agreements entered into with major partners, such as Australia. 

If you have involvement with the United Kingdom and queries about the potential impact of the new double tax agreement, please contact your Baker Tilly Staples Rodway tax advisor.