Advocacy Update: Significant Progress on Game Dev Tax Policy

1. The Policy Conflict

Late last year, Inland Revenue released a consultation document proposing major changes to the tax treatment of software development costs across New Zealand. For game studios, the implications of these draft rules were severe.

Under the originally proposed framework, the core costs of creating a video game, including development wages and contractor fees, would be forced into a strict capitalisation model and amortised over three to four years, rather than being deductible in the period they are incurred.

The problem is that interactive media revenue does not work like a standard subscription software model. When a game title launches, it typically generates a massive income spike in its first year. Under a strict capitalisation model, studios would face a devastating tax bill on that initial "Launch Spike" revenue without being able to fully offset it against the actual development costs that made the game possible.

This creates an artificial "phantom profit," trapping vital cash flow, the exact working capital that the 20% Game Development Sector Rebate (GDSR) was designed to inject into our sector to keep us globally competitive.

2. What We Did

The NZGDA moved quickly to protect the runway of Kiwi studios. We submitted a comprehensive technical briefing to Inland Revenue, and on 19 March 2026, industry leaders including Joy Keene and Lance Burgess met directly with the Inland Revenue Tax Policy team to illustrate the commercial realities of our sector.

To ensure our message was heard at the highest levels of government, we executed a coordinated ministerial escalation. We dispatched targeted, formal correspondence to:

• Hon Nicola Willis (Minister of Finance & Minister for Economic Growth)

• Hon Simon Watts (Minister of Revenue)

• Hon Dr Shane Reti (Minister of Science, Innovation and Technology)

Our unified asks were straightforward: align the tax mechanics with our commercial reality by providing a clear exemption from mandatory capitalisation (achieving parity with the New Zealand Screen Industry under Section EJ 7), and protect the intended value of the GDSR.

Following this ministerial outreach, we met with senior Inland Revenue officials for a critical follow-up technical session to put our case forward in deeper detail. The policy team demonstrated a better understanding of the unique financial lifecycle of hit-driven entertainment products.

3. Where Things Stand

Our advocacy has successfully made initial progress. On 30 June 2026, NZ On Air formally communicated a major policy confirmation from the Inland Revenue regarding the tax status of our incentive:

Inland Revenue has officially confirmed that the GDSR is to be treated as a non-taxable grant for tax purposes. This is a massive victory for our industry. It completely eliminates the immediate threat of the rebate being hit with an upfront 28% income tax clawback upon receipt.

Crucially, from a practical standpoint, this means that the portion of development costs funded by the GDSR can be completely removed from the tax capitalisation pool. Under the currently proposed rules, studios will not be forced to capitalise and track these rebate-funded expenses across a multi-year depreciation schedule; they simply reduce the asset's cost base upfront. While future depreciation deductions on the remaining studio-funded spend will be lower, the ability to completely keep the rebate amount out of the capitalisation mechanism provides immediate structural relief. 

While securing the tax-free status of the GDSR is a monumental milestone, our work is not finished. As long as mandatory multi-year capitalisation remains on the table for our remaining development costs, the "Launch Spike" revenue mismatch and the administrative burden of tracking "Live Operations" micro-updates still pose severe challenges for local studios. We have continued in direct contact with the Head of Tax Policy at Inland Revenue, who has confirmed that these remaining matters are part of active, ongoing discussions. The Government has heard our case, the door is wide open, and Inland Revenue is actively working with us to explore further structural solutions. We expect to announce further progress on these deduction and capitalisation frameworks in due course.

Disclaimer: The NZGDA provides industry advocacy and does not provide formal tax or financial advice. Because the practical application of this update can vary significantly depending on how your studio has treated development spend in previous tax returns, we strongly encourage all members to consult their own professional tax advisers regarding next steps.