Business and Tax Updates February 2025: IBBZ Accounting

Summary:

As we progress into the new year, February offers a strategic moment to review and refine your financial objectives. This month provides an excellent opportunity to assess your accounting records, optimize budgeting strategies, and prepare for upcoming tax deadlines. At IBBZ Accounting, we remain dedicated to guiding you through these pivotal tasks with expert advice and tailored financial solutions.

Thank you for entrusting us with your financial planning. Together, let’s navigate February with confidence, setting the stage for continued success.

Wishing you a productive February and ongoing financial growth.

Key Business Updates

1. RBNZ Lowers OCR to 3.75% as Inflation Eases

The Reserve Bank of New Zealand (RBNZ) has reduced the Official Cash Rate (OCR) by 50 basis points to 3.75%, citing continued progress in lowering inflation. With annual inflation now within the target range of 1–3% and businesses adjusting to a lower inflation environment, the Monetary Policy Committee sees room for further cuts in 2025. Lower interest rates are expected to support economic recovery, encouraging consumer spending and business investment.

For borrowers, this means mortgage rates are likely to continue declining as banks adjust lending rates in response to the lower OCR. Homeowners coming off fixed-rate mortgages may see opportunities to refix at lower rates, easing repayment pressures. On the other hand, term deposit rates are expected to decrease, making it more challenging for savers to earn attractive returns on cash deposits. Investors may need to reassess their portfolio strategies in response to these changes.

2. Unemployment Remains Subdued but Recovery Expected

New Zealand’s labour market remains weak, with job vacancies and employment growth slowing due to subdued economic activity. Wage growth has also softened, reflecting lower inflation and reduced demand for workers. However, employment is expected to improve in the second half of 2025 as the economy recovers. A decline in net immigration has contributed to labour market tightness, but a gradual rebound in business confidence could drive hiring in the coming months.

3. Inflation in Check, But Near-Term Volatility Expected

Inflation remains under control, with core inflation converging toward the midpoint of RBNZ’s target range. However, short-term fluctuations are expected due to a weaker exchange rate and rising oil prices. While headline inflation may rise in the coming months, underlying inflationary pressures are easing. The RBNZ remains confident that monetary policy will keep inflation stable over the medium term, supporting economic stability and growth.

4. NZ Dollar Weakens as US Dollar Strengthens

The New Zealand dollar has depreciated by around 3% on a trade-weighted basis since November, largely due to the continued strengthening of the US dollar. Market expectations of higher US interest rates and proposed tariffs have driven demand for the US dollar, making it more attractive relative to other currencies. Given that many of New Zealand’s key trading partners, such as China, peg their currencies closely to the US dollar, this has further pressured the NZD downward. Additionally, falling domestic interest rates have made NZ assets less appealing to global investors, contributing to the currency's decline. A weaker NZD may benefit exporters by making New Zealand goods more competitive, but it also raises the cost of imported goods, which could add inflationary pressure in the coming months.

Important Tax Changes

1. Increased Focus on Payday Filing by IRD

Inland Revenue (IRD) is stepping up its focus on payday filing compliance, with regular checks to ensure employers are submitting their Employment Information (EI) on time. From later this month, IRD will begin contacting employers where EI records appear to be missing.

Even if you are unable to make PAYE deductions, timely EI filing is essential to keep employee tax records accurate. Employers who fail to file on time may face penalties and interest. If your business has changed, or you no longer employ staff, you should notify IRD to avoid unnecessary compliance issues.

Stay ahead of these requirements by ensuring your payroll processes align with IRD’s expectations. If you need assistance with payday filing or payroll compliance, our team is here to help.

2. Tax Deduction for Initial Repairs on New Assets

If you purchase a capital asset and need to carry out repairs before using it in your business, you may not claim these costs as an immediate tax deduction. Inland Revenue considers such "initial repairs" to be capital in nature, meaning they are not deductible under s DA 2(1) of the Income Tax Act. This applies even if the repairs would have been deductible had they been done by the previous owner.

However, if the asset is depreciable property, you may add the repair costs to the asset’s value and claim depreciation over time. This ensures you can still recover the costs gradually, rather than as an upfront expense.

If you’re unsure how this applies to your business, we can help you determine the correct tax treatment and ensure compliance with IRD rules.