From thin to fit? Toning up New Zealand’s thin-cap tax rules for infrastructure

Inland Revenue has released an officials’ issues paper titled “Thin Capitalisation Settings for Infrastructure” with a public consultation period open from 19 May to 19 June 2025. The paper invites submissions on proposed reforms aimed at addressing the limitations of the current thin capitalisation rules, particularly for foreign direct investment (FDI) in privately owned infrastructure assets.

What is on the table?

Reform option

Core features (based on initial preferences set out in the issues paper)

Option 1: Targeted extension of existing PPP infrastructure thin cap concession

Preferred option – seen as a tight fix that maintains the integrity of the wider thin-cap regime.

In short, extend existing thin cap concession for public-private-partnership (PPP) to infrastructure developed for private ownership.
Applies only to new projects (greenfield and some major brownfield upgrades).
Covers traditional infrastructure, plus a list of qualifying project types (potentially including large-scale residential developments).
Third-party, limited-recourse debt only – appears that interest would be fully deductible where debt is third party debt and recourse is confined to the project’s assets/income.
Requires an irrevocable election.

Option 2: General rule for third-party limited-recourse debt

IRD signals that this would need to be properly costed, with appropriate guardrails to prevent abuse.

Broader carve-out that would apply across sectors, not just infrastructure.

Our initial thoughts

The estimated fiscal cost of these proposals is just $65 million over four years (i.e., $16.25 million annually). The details of this cost forecast have not yet been released and the forecast may simply reflect the tax profile of new infrastructure projects. However, given these relatively modest numbers – compared with the scale of New Zealand’s infrastructure deficit (estimated at $210 billion) – it is an open question whether this reform alone will be sufficient to “move the needle” on infrastructure investment. Those hoping for a bolder approach should consider making submissions on the issues paper.

If you have any questions, please contact one of our experts.