Appendix
Briefing note
Reference
BN2026/120
Date
23/04/2026
To
Revenue Advisor, Minister of Finance – Carl Harris
Revenue Advisor, Minister of Revenue – Angela Graham
Private Secretary, Minister of Revenue – Melissa Zhen
From
Graham Tubb
Subject
Software development expenditure – NZGDA correspondence
Purpose
1
This briefing note updates you on the correspondence from the New Zealand Game
Developers Association (NZGDA) dated 30 March 2026, our preliminary assessment of
its requests, and how officials propose to manage next steps.
Background
2
The tax treatment of software development expenditure has evolved over time in
response to changes in technology and commercial practice. In 1993, Inland Revenue
issued a Commissioner’s policy statement that treated certain software development
costs as trading stock, allowing deductions when the software was sold or licensed.
That approach was developed in the context of physical software distribution models
(for example, shrink‑wrapped products such as CDs) and was later regarded as
concessionary as the industry moved to licence‑based and service‑based models.
3
In 2016, Inland Revenue consulted on an interpretation of the law to better reflect
contemporary software commercialisation models. To allow for further consideration
through a policy process, that work was not finalised. More recently, concerns about the
continued reliance (if any) on the 1993 statement, and its consistency with current law
and practice, led to the formal withdrawal of that statement on 29 November 2024.
4
In December 2025, officials released an issues paper consulting on the problem
definition for software development expenditure, and the treatment of software as a
service (SaaS). The consultation document did not contain proposed policy solutions
but was designed to better understand the specific concerns of the software
development industry so that officials could develop options to address those concerns.
5
NZGDA participated in the consultation process and subsequently wrote to multiple
Ministers on 30 March 2026. That correspondence reflects concerns specific to the game
development sector, particularly the interaction between current depreciation rules, the
withdrawal of the 1993 statement, and the sector’s revenue model.
NZGDA letter
6
The 30 March letter raised the following issues, broadly consistent with the separate
submissions made during the consultation:
BN2026/120 Software development expenditure – NZGDA correspondence
Page 1 of 4
•
New Zealand’s game development sector rebate (GDSR) is not competitive with the
Australian equivalent, the digital games tax offset (DGTO), because of the taxable
nature of the GDSR in New Zealand.
•
It is not appropriate to group the game development sector under the broad term
“software development”.
– The gaming sector has a specific revenue model that causes a “launch spike”,
meaning most revenue from any one product is earned within the first year of
release, meaning depreciation over three years creates a revenue mismatch.
– Games often require constant “live updates”, and it is not practical to track and
recognise these as separate capital assets to be depreciated.
•
NZGDA is seeking three principal policy changes:
–
Tax treatment of the GDSR: Confirmation that the GDSR should be treated
as non-taxable income, consistent with the treatment of Australia’s DGTO and
certain New Zealand screen production rebates.
–
Timing of deductions for game development costs: A rule allowing
capitalised game development costs to be written off immediately on
commercial release, analogous to timing rules available in the screen
production sector.
–
Treatment of “live operations” and content updates: Clearer policy
boundaries so routine live operations, updates, and seasonal content are
treated as deductible operating expenditure rather than capital assets.
Comment
7
Officials met with NZGDA on 19 March 2026 to discuss its submission.
8
s 6(c)
A revised statement has not been finalised while the current
consultation proceeds.
9
s 9(2)(g)(i)
10
Outside the gaming sector, our consultation with other stakeholders did not raise any
fundamental issues surrounding the timing of depreciation and capitalisation of assets.
There have been suggestions of some streamlining of the depreciation regime, but most
stakeholders were more concerned with issues surrounding SaaS given the associated
compliance costs and number of taxpayers.
Change request 1: Tax treatment of GDSR
11
NZGDA has argued that the rebate should be treated as a non-taxable grant. It does
not appear that Inland Revenue has issued any kind of ruling on the rebate specifically.
12
We are currently engaging our legal teams to determine the specific classification of the
GDSR and its taxable treatment. At first glance it appears that there is at least a case
that the GDSR is a government grant under existing legislation.
13
If the GDSR is considered a grant, it would mean it is non-taxable with no deductions
allowed for any expenditure that corresponds with the grant. This is linked to NZGDA’s
second, and main concern, that cashflow suffers when the grant is taxable in the year
received but expenditure must be depreciated over several subsequent years. In theory
there should be no long-term fiscal difference to the Government or taxpayer whether
BN2026/120 Software development expenditure – NZGDA correspondence
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the treatment of the payment and corresponding expenditure is taxable/non-deductible
or taxable/deductible.
Change request 2: Recognising tax impacts due to timing of deductions
14
As noted above, a key issue highlighted by the NZGDA is how its revenue model does
not match the requirement to depreciate capital assets over a three-year period due to
the subsequent revenue from the game assets peaking and dropping off markedly
within the first six to twelve months. This essentially creates an artificial profit (a
“launch spike”).
15
s 9(2)(f)(iv)
16
As part of its submission in the letter, NZGDA pointed to the tax regime that applies to
New Zealand films, which it says are analogous to gaming software. The NZGDA is
seeking a similar immediate deduction of costs.
17
Currently, the film production industry has bespoke deduction rules allowing them to
immediately deduct costs in the income year the film is completed, essentially
accelerated deductions. These rules are complex and linked to concepts such as film
completion, involving certification by the New Zealand Film Commission, and whether
the film is a “feature film or a New Zealand film”. Replicating these for the gaming
industry would not be a simple undertaking.
18
s 9(2)(f)(iv)
Change request 3: Live updates
19
The NZGDA has argued that its live updates constitute operational expenses as opposed
to capital expenses and therefore should be immediately deductible.
20
Inland Revenue’s current interpretation of the law only allows for deductions when
maintenance and “bug fixing” is done. When seasonal products are implemented, such
as a Halloween-specific add-on to a game, capitalisation would likely need to occur to
depreciate the relevant expenditure.
21
This is consistent with the usual approaches to capital expenditure, and applies to other
software developer s 9(2)(f)(iv)
Australian approach
22
Australia, like New Zealand, does not have specific rules governing software
development costs and depreciation; instead, general depreciation rules apply. The
applicable depreciation rates for software assets appear to be broadly comparable
between New Zealand and Australia.
23
As noted above, Australia also directly supports the gaming sector through its DGTO.
This scheme works as a 30% federal tax offset that is also stackable with state level
incentives, which can provide an effective rebate of up to 50%. New Zealand’s GDSR
was largely modelled on this scheme and offers a 20% rebate on eligible expenditure.
BN2026/120 Software development expenditure – NZGDA correspondence
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24
s 9(2)(f)(iv)
Next steps
25
s 9(2)(f)(iv)
26
s 9(2)(f)(iv)
27
We recommend the Minister provides a response to the NZGDA clarifying the
consultation status and encouraging it to continue engaging with officials as policy
options are developed.
28
Inland Revenue will also engage directly with NZGDA on the tax treatment of the GDSR.
Some operational options exist that companies could potentially use to soften the
effects of the depreciation regime, possibly including Investment Boost, and
applications for special depreciation rates. We will report back to Ministers if that
outcome raises further concerns.
Graham Tubb
Principal Policy Advisor
s 9(2)(a)
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