Business and Tax Updates April 2025: IBBZ Accounting

Summary:

As we step into the new tax year, this is a crucial time to finalise your financial records, ensure all documentation is current, and prepare for the year ahead. We encourage you to gather the necessary information early, review your tax positions, and align your financial strategies with your goals for the upcoming year.

At IBBZ Accounting, we remain committed to providing you with expert guidance and tailored solutions to meet your personal and business needs.

Thank you for your continued trust in us. Let’s work together to close out the current financial year with confidence and enter the new one with renewed momentum.

Key Business Updates

1. Inflation Rises to 2.5% Amid Higher Domestic Costs

New Zealand's annual inflation rate increased to 2.5% in the March 2025 quarter, up from 2.2%, driven by higher costs in fuel, housing, rents, groceries, and tertiary fees. This marks the largest quarterly Consumer Price Index (CPI) rise since September 2023, with a 0.9% increase over the three months. Domestic (non-tradable) inflation was a significant contributor, with rents rising 3.7% annually. Despite this uptick, inflation remains within the Reserve Bank's target band of 1–3%, and economists suggest it is unlikely to deter further interest rate cuts.

2. New Zealand Achieves Largest Monthly Trade Surplus in Nearly Five Years

New Zealand recorded a strong trade surplus of $970 million in March 2025 – the highest monthly surplus in almost five years (excluding pandemic-related months). Exports rose by 19% compared to March 2024, with big increases in dairy, meat, and fruit exports. Major trading partners like China, the United States, and the European Union all showed strong demand for New Zealand products.

While imports also increased by 12%, the growth in exports was much stronger, leading to the large surplus. This result shows the resilience of New Zealand’s export sector despite global economic challenges.

3. Signs of a Slow and Uneven Economic Recovery

Westpac’s latest survey shows New Zealand’s economy remains cool but hints at a slow recovery. Many businesses report that while demand is still subdued, particularly in retail, hospitality, and construction, conditions have stopped worsening. Lower borrowing costs and rising commodity prices, especially in dairy, meat, and horticulture, are boosting optimism, especially in rural regions like Canterbury, Otago, and Southland. However, inflation, high insurance costs, and local rates remain major concerns, and uncertainty from global tariff tensions is making businesses cautious about investing. The labour market has softened, with firms reluctant to hire, and some staff moving to Australia. Urban centres like Auckland and Wellington continue to face tough conditions, while rural areas are seeing stronger growth.

Important Tax Updates

1. Income Tax Treatment of Gift Cards and Promotional Products

When trade suppliers provide gift cards or products to trade customers as part of trade rebates, promotions, or rewards, careful tax treatment is required. Gift cards are generally taxable income to the recipient based on their face value. If provided by employers to employees, the cards may trigger PAYE or fringe benefit tax (FBT) obligations, depending on whether they are "open loop" (cash equivalent) or "closed loop" (store-specific). Products given to trade customers are taxed based on their second-hand (realisable) value and may also give rise to FBT if provided to employees. Trade customers may claim deductions for gift cards or products provided to employees but not for those treated as dividends to shareholders. Separately, trade suppliers are entitled to deduct the cost of the gift cards or products provided. Careful consideration is recommended to ensure correct tax reporting.

2. Income Tax – Short-Stay Accommodation Provided by Close Companies

The IRD provides the clarification on the situation that when a close company provides short-stay accommodation (such as through Airbnb or Bookabach), the income tax treatment depends on whether the mixed-use asset rules apply. If the mixed-use asset rules apply, rental income is taxable, while use by shareholders or associates below market rent is treated as exempt income. Specific rules determine which expenses are deductible and how they are apportioned. If the mixed-use asset rules do not apply, standard tax rules treat rental income as taxable and allow deductions for related costs. Additionally, if shareholders or employees use the property without paying full market rent, it may be treated as either non-cash dividends (for shareholders) or employment income (for employees).

3. Use of money interest (UOMI) rate change

From 8 May 2025, the UOMI rates on underpayment and overpayments of tax will change. The new rates are:

• underpayment - 9.89% down from 10.88%

• overpayment - 3.27% down from 4.30%

4. 2025 Tax Filing – Time to Prepare and Review

The 2025 tax filing season is now underway. We encourage all clients to start gathering their income and expense information and contact their accountant early to ensure a smooth filing process. This is also a good opportunity to review your Inland Revenue (IRD) account for any overdue tax payments from previous years. With IRD interest rates continuing to rise, it is important to address any outstanding balances promptly. If you need assistance with setting up a payment arrangement or applying for financial relief, we recommend reaching out as soon as possible to avoid additional costs.