IRD has quietly doubled the thresholds for 'cash basis person' status — the first update in 30 years. If you have term deposits or foreign currency accounts, you may have been doing unnecessary tax calculations.
New Zealand's tax system has a category of person that most people have never heard of, but that a significant number of people are classified as — and a recent change to the rules means fewer of them will need to do extra tax work.
A "cash basis person" is someone who pays tax on income when it is actually received, rather than when it is accrued or earned for tax purposes. For most employees, this distinction is irrelevant — PAYE takes tax at source and there is no option. But for people with significant savings in term deposits, government bonds, or offshore accounts, the question of which method applies can matter a lot.
Those limits were set decades ago and had become significantly outdated due to inflation. The previous threshold for cash basis status was income from financial arrangements of less than $100,000, or total assets of less than $1 million. IRD has now doubled both thresholds: $200,000 in income from financial arrangements, and $2 million in total assets.
What the change affects
John Cuthbertson, tax leader at Chartered Accountants Australia and New Zealand, explained the practical impact in terms that are worth understanding even if you have never heard the phrase "cash basis person".
"Foreign exchange can be particularly problematic," he said. "When exchange rates are volatile, taxpayers can end up paying tax on paper gains that may never be realised, creating uncertainty and undermining even the best provisional tax planning."
The previous rule created a situation where someone with a term deposit maturing in five years, or a foreign currency account, might need to calculate accrued interest or unrealised exchange rate gains and pay tax on them before the money had actually arrived in their hands. For people managing multiple investments or savings vehicles across borders, the compliance cost was real.
There was also a requirement that the difference between cash and accrual method calculations could not exceed $40,000 — a threshold that had become arbitrary and, in Cuthbertson's words, "perverse": taxpayers often had to do the more complex calculation to prove they were not required to use it.
Who benefits most
The direct beneficiaries are people with substantial savings in the $100,000 to $2 million range from financial arrangements — a group that is not huge but is not trivial either, particularly among people who have sold property, received inheritance, or run small businesses with retained earnings.
Deloitte tax expert Robyn Walker noted that the change was not new in substance — it was included in a tax bill enacted at the end of March — but it brings the law back to something closer to what has been happening in practice for many people. The thresholds had simply drifted too far from economic reality to be meaningful.
Cuthbertson added a forward-looking observation: with the higher thresholds, "most people moving to New Zealand will have one less tax complexity dissuading them" from settling here. That is relevant for skilled migrants and business relocations where savings vehicles are part of the picture.
What it does not change
This is a compliance simplification, not a policy shift in the direction of higher or lower taxes. The underlying obligation to pay tax on financial investment income has not changed — only the method and timing of how that tax is calculated and paid for a subset of people.
The cash versus accrual distinction matters most when investment returns are uncertain or delayed. If you have term deposits with a fixed known return, the difference between the two methods is usually small. Where it bites is in situations like foreign exchange gains on offshore accounts — paper moves that may never be converted to New Zealand dollars.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.