Business and Tax Updates January 2025: IBBZ Accounting
Summary:
The start of a new year is the perfect time to reflect on the successes of the past year and set fresh goals for the months ahead. At IBBZ Accounting, we’re committed to helping you navigate the opportunities and challenges that lie ahead, ensuring your financial strategies are well-positioned for growth and success.
January is a great time to review your plans, tidy up your accounts, and identify key areas for improvement or expansion. Whether you’re focusing on streamlining operations or preparing for new ventures, we’re here to support you every step of the way.
Thank you for choosing IBBZ as your trusted financial partner. Let’s make 2025 a year of success and opportunity together.
Key Business Updates
1. Inflation Rate
As of December 2024, New Zealand's inflation rate stood at 2.2%, well within the Reserve Bank's target range of 1% to 3%. This reflects easing food and energy prices, a stabilized housing market, and the impact of earlier monetary policy measures. Supply chains have normalized, reducing cost pressures, and the economy is showing signs of balanced growth after a period of elevated inflation.
2. OCR Next Announcement
As of January 2025, the Reserve Bank of New Zealand's Official Cash Rate (OCR) is 4.25%. Economists anticipate further reductions in 2025, with forecasts suggesting the OCR could decrease to between 3% and 3.5% by the end of the year. These potential cuts are aimed at stimulating economic growth by lowering borrowing costs for individuals and businesses.
The RBNZ is set to announce its next OCR decision on 19 February 2025. OCR adjustments play a key role in maintaining price stability and supporting maximum sustainable employment. Changes to the OCR directly impact interest rates, influencing borrowing and spending across the economy.
Important Tax Changes
1. Proposals for FIF Rules Amendment on Migrants
Inland Revenue has launched consultation on policy proposals to address an aspect of New Zealand’s foreign investment fund (FIF) rules aiming to boost investment in IT, technology, and attract foreign investors by encouraging skilled individuals to move to New Zealand. The current FIF rules tax investments in foreign companies (where someone owns less than 10%) based on deemed income rather than actual income. This approach is uncommon internationally and can discourage migrants, especially those with illiquid investments or those facing double taxation in other countries.
The Government is considering changes to make the FIF rules less of a barrier for migrants, with two main options:
- Revenue Account Method: Tax only dividends and gains from foreign investments on disposal or emigration, primarily for non-listed foreign equities.
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Deferral Method: Tax on a realisation basis, similar to foreign superannuation, where tax applies when the investment is sold, resolving cash flow and double taxation issues.
These changes would apply only to migrants arriving after a certain date and aim to make New Zealand more attractive to international investors while minimizing tax complications. The Government seeks feedback before deciding on any changes.
2. Transitional Residency and Cryptoassets
Under New Zealand tax law, transitional residents are allowed to treat foreign-sourced income as exempt, excluding income from employment or services. The TCO assessed the source of cryptoasset sales and concluded they do not have a New Zealand source. This is because the transactions involve overseas exchanges and rely on a public/private key system, where the private key is held by the owner and the public key operates across global nodes.