Tax Debt Relief: NZ Pilot Programme & Infrastructure Investment Changes
Taxpayers with outstanding income tax from 2023 and 2024 will have a new pathway to resolve their debts without incurring penalties, following an amendment to the Taxation Bill currently before Parliament. The initiative, announced this week, establishes a pilot program allowing eligible individuals and businesses to settle tax arrears through a tax pooling arrangement, with arrangements needing to be in place by October 1, 2026, and full settlement required by October 1, 2027.
Tax pooling enables taxpayers to manage their tax obligations by effectively borrowing from entities that have overpaid their taxes. Nicola Taylor, co-founder of Tax Traders, highlighted the significance of the program, stating that the $1.2 billion in outstanding income tax across the relevant periods is often a result of cash flow issues rather than intentional non-compliance. “Tax debt is not about not wanting to comply. It’s actually usually about cash flow and timing,” she said.
The program aims to alleviate the financial burden of late payment penalties and interest charges. Taylor explained that a taxpayer facing a $10,000 unpaid tax bill could potentially save approximately $800 in penalties and interest by utilizing the tax pooling system. She praised Inland Revenue’s approach as “innovative” and “empathetic.”
Alongside the tax debt relief measure, the amended bill addresses concerns raised by the Corporate Taxpayers Group regarding thin capitalisation rules. These rules are designed to prevent multinational companies from artificially inflating debt levels in New Zealand to reduce their tax liabilities. However, the group argued that the rules were inadvertently hindering investment in large-scale infrastructure projects, even when debt levels were reasonable.
The revised rules introduce an exemption for investments in qualifying infrastructure assets funded by limited-recourse third-party debt. Deloitte partner Robyn Walker suggested that projects in sectors such as transport, water, energy, and telecommunications could potentially benefit from the new provisions. John Payne, chair of the Corporate Taxpayers Group, expressed satisfaction with the progress, noting that tax regulations can often impede investment and that the amendments help remove a significant barrier.
Revenue Minister Simon Watts emphasized that the changes are intended to facilitate access to capital and expertise for New Zealand. “New Zealand’s thin capitalisation rules limit the amount of tax-deductible debt that foreign investors can put into New Zealand investments,” Watts stated. “These rules prevent income being shifted offshore and protect our tax base. However, there is a risk that these rules can unduly disincentivise investment, particularly in capital-intensive infrastructure projects.” He added that the government is striving to strike a balance between safeguarding the tax base and encouraging investment in infrastructure.