Shareholders Loan Proposal Halted

Late last year, Inland Revenue released a proposal that would have significantly changed how shareholder loans are taxed. The proposal suggested that loans above a certain threshold could be treated as dividends, aligning New Zealand’s approach more closely with rules in countries like Australia and the UK.

The proposal generated considerable concern among business owners and advisors, given the potential impact on how shareholder current accounts are managed.

Following political opposition, the proposal will not proceed in its current form. However, this does not mean the issue has been resolved. Inland Revenue has indicated it will continue reviewing the treatment of shareholder loans, particularly in situations where companies enter liquidation with outstanding balances.

One of the key concerns behind the proposal was the risk of funds being drawn by shareholders while companies still owe tax, such as GST or PAYE. In some cases, this can result in Inland Revenue missing out when companies fail. At the same time, there has been debate around whether the proposed changes were addressing the right issue, or combining separate concerns into a single solution.

There is also growing recognition that more data is needed to fully understand the link between shareholder loans, company failures, and unpaid tax. Future changes may instead focus more specifically on what happens when companies go into liquidation, rather than applying broad rules to all shareholder loans.

What This Means for You

For now, no immediate changes apply. However, this remains an area under active review, and further consultation is expected.

If you have a shareholder current account or regularly draw funds from your company, it is important to ensure your arrangements are well documented and managed appropriately. This is likely to remain a focus area for Inland Revenue going forward.

If you would like to discuss how this may affect your business, feel free to get in touch with us.