For Australian businesses with existing or planned operations in New Zealand — particularly those involved in energy, utilities, transport, or construction — this consultation could signal meaningful changes to how your projects are financed and taxed.
What’s Driving the Review?
Inland Revenue is concerned that the current thin capitalisation rules — which limit the amount of debt a foreign-owned business can use to fund its New Zealand operations — may be discouraging foreign investment in key infrastructure projects.
The rules aim to prevent excessive interest deductions that shift profits out of New Zealand. However, officials recognise that infrastructure projects often rely on higher levels of debt due to their capital-intensive nature and long payback periods. The government wants to ensure that the system protects the tax base without deterring much-needed private investment in essential services.
Two Possible Options on the Table
The consultation paper sets out two approaches for change:
- A targeted rule for infrastructure projects
This option would apply thin capitalisation settings more flexibly to certain qualifying infrastructure investments. Inland Revenue’s initial preference is for this targeted approach, as it directly addresses the issue without creating unintended wider impacts. - A more general rule for third-party debt
This broader option would focus on debt sourced from external lenders rather than related parties. It could simplify compliance but might not specifically address the challenges unique to large infrastructure projects.
Submissions are invited on both approaches, with feedback due by 19 June 2025.
Why It Matters for Australian Businesses
For Australian-based investors, particularly those expanding into New Zealand infrastructure, any future adjustment to thin capitalisation could affect funding structures, interest deductions, and after-tax project returns.
Given the close economic ties between Australia and New Zealand, many mid-sized and family-owned Australian companies participate in NZ projects through subsidiaries or joint ventures.
Understanding how these changes could reshape financing flexibility is essential for forward planning — and ensuring continued compliance with both Australian and New Zealand tax rules.
Our Insight
At NZ Tax Accountants, we work exclusively on New Zealand tax matters for Australian businesses. We believe this consultation signals a potential shift toward more investment-friendly treatment for infrastructure financing — but only if structured correctly. Early awareness and proactive tax planning will help ensure that any transition is smooth and tax-efficient for cross-border investors.
If you are financing, operating, or advising on NZ infrastructure projects, now is the time to review your structures and consider making a submission to Inland Revenue.
Need help understanding how New Zealand’s thin capitalisation rules apply to your business or investment structure?
Contact NZ Tax Accountants today — we specialise in helping Australian businesses stay compliant and make confident decisions when operating in New Zealand.
The information in this article is indicative of NZ tax rules and changes and not intended to be complete for all intents or purposes and does not constitute advice. It is recommended that you obtain professional advice, suited to your particular circumstances, from us before acting on anything you read.