The bill contains some major reforms to the tax system, particularly New Zealand's international tax rules.

While the substantive contents of the bill have not come as a surprise, as there had been clear signals in advance on most material topics, issues have already started to arise as to adequacy of the legislative drafting. This is in addition to the pre-existing concerns around certain intended policy outcomes.

The substantive areas of New Zealand tax reform contained within the bill include:

• The introduction of an active income exemption for controlled foreign companies, which is generally viewed positively. The repeal of the conduit regime, the repeal of the grey list other than Australia and the introduction of interest allocation rules for outbound investment, all generally viewed negatively.

• A new taxing regime for life insurers

• A new payroll giving regime which will likely impact on all employers in some way

• Reform of the definition of "associated persons" which will have major impacts for those involved in the development of property or building industries – or anyone who now finds themselves associated with such a person

• Changes to the treatment of relocation allowances and overtime meal allowances.

• Rules governing the taxation of emissions trading units

• Changes to the taxation of petroleum miners, particularly in relation to their foreign branch operations

• Changes to certain tax thresholds

• Clarifications to the existing Tax Discloser Right protections

Arguably the most material changes in the bill are from an international tax perspective. As noted above, New Zealand will soon see the introduction of an active income exemption for controlled foreign companies. This move will bring considerable relief to those domestic companies with global operations outside of New Zealand's traditional trading partners that have to integrate those operations within their New Zealand tax calculations so as to claw back any tax preferences that may exist from operating in those jurisdictions.

Conceptually the new regime should exempt from New Zealand tax any controlled foreign company income regardless of country of origin, provided that the level of passive income does not exceed 5% of the total income in the foreign jurisdiction.

While this aspect of the bill is pleasing, it is offset for certain taxpayers by the introduction of interest allocation rules. Mechanistically, these rules will operate by extending the ambit of the existing thin capitalisation rules to also capture all businesses investing offshore, including New Zealand owned businesses (with some minimal thresholds to ensure that SMEs are not unduly impacted).

Essentially the interest allocation rules will deny interest deductions if New Zealand debt exceeds 75% of New Zealand assets so that in the future domestic operations (and hence their tax base) will be limited as to the extent to which they can fund global expansion.

This aspect of the international tax changes is concerning given the disincentive that it provides for the limited number of large companies to grow internationally while staying head quartered in New Zealand.