Submission by Tech New Zealand to Inland Revenue Department (IRD)
Tech New Zealand has lodged its submission on Inland Revenue’s issues paper on the Income Tax Treatment of Software Development Expenditure and SaaS Customisation and Configuration Costs, welcoming the opportunity to contribute on behalf of the wider tech ecosystem. The submission calls for clearer, more fit-for-purpose tax treatment that reflects how software is actually built, owned, and commercialised in today’s digital economy.
Key Position
Tech New Zealand supports a fundamental rethink of how tax rules apply to software and digital assets. Current frameworks were designed for a different era (when software was distributed on physical media and sold outright) and don’t reflect the realities of modern SaaS models, intellectual property licensing, and agile development practices. The submission calls for sharper terminology, reduced compliance complexity, and rules that align with how businesses actually operate.
Key Recommendations
The submission responds to 18 questions across two chapters, with the following priority positions:
- Modernise the language and framework — Replace the broad term “software development” with more precise categories (digital assets, digital products, digital services) to reduce ambiguity and simplify compliance.
- Align tax treatment with accounting practice — Where tax rules diverge from standard accounting treatment (e.g. NZ IAS 38), businesses face unnecessary compliance burden. Rules should work with — not against — accepted accounting principles.
- Treat SaaS arrangements as service contracts, not asset ownership — SaaS is Software as a Service. Clients do not own the underlying software; they hold use rights under a license agreement. Treating SaaS contracts as intangible property ownership is a root cause of unnecessary complexity and should be corrected.
- Simplify section DB 34 — The current language is overly technical and creates disproportionate compliance costs, particularly for smaller businesses. A dedicated provision for software and digital asset development expenditure would improve clarity and accessibility.
- Recognise systems integration costs appropriately — The bulk of SaaS implementation costs sit outside the SaaS product itself (data migration, integration, configuration of surrounding systems). Tax treatment should reflect this broader system-level reality, not just the narrow SaaS C&C scope defined by IFRIC.
- Remove the risk of black hole expenditure — Abandoned SaaS arrangements should not create stranded, non-deductible costs. Treating expenditure as either expensed or capitalised — based on what it’s actually for — avoids black holes without requiring special SaaS-specific rules.
The Bigger Picture
Tech New Zealand represents more than 2,500 member organisations that together employ 10 percent of the New Zealand workforce. The tech sector contributes around $22 billion to GDP and is New Zealand’s third-largest export sector, with software exports growing at more than 20 percent annually. Clear, workable tax settings for software investment directly support the growth, competitiveness, and cash flow of New Zealand’s most dynamic businesses — from startups to multinationals.
Moving Forward
Tech New Zealand thanks Inland Revenue for the opportunity to contribute to this consultation and is committed to ensuring members play an active role in shaping any changes to software tax treatment. We welcome further engagement as this work progresses.
