Home > Updates > Shareholder loans – proposed change in tax treatment
Inland Revenue has launched an issues paper seeking public feedback on proposed changes to how loans from closely-held companies to natural person shareholders, or trust shareholders, are taxed. Read more here.
Inland Revenue’s new view is that shareholders that receive loans from their companies which remain outstanding for a long time, are essentially avoiding the top 39% tax rate as otherwise the funds would have been distributed as shareholder salary or dividends. In addition, if the company is wound up with the loan still in place, the shareholder has effectively received funds without paying tax. Implementing these proposals will bring New Zealand in line with other countries while still allowing the normal business use of short-term drawings.
Of concern is the main proposal that treats certain shareholder loans (including loans of amounts which reflect capital gains derived by the company) as taxable dividends if the loans are not repaid within 12 months from the end of the income year that they were made.
Whilst this proposal would only apply to new loans taken out from 5 December 2025, and would apply only when a company’s total lending to shareholders is $50,000 or more, this proposal has significant implications for SME shareholders who, for a variety of reasons, choose not to pay themselves a shareholder salary or dividend.
Inland Revenue is also proposing that any shareholder loans not already taxed under the proposal above, and that remain outstanding at the time a company is removed from the Companies Register, be treated as taxable income of the shareholder. This rule would apply to any company removed from the Companies Register on or after 5 December 2025. Inland Revenue is suggesting that the taxable income could either be treated as a dividend, or as income under the financial arrangement rules (via the Base Price Adjustment calculation).
Again, this proposal will have significant implications for SME shareholders, particularly those shareholders who have made the difficult decision to cease trading and wind up their business, and who will now be hit with an additional income tax burden which they may be unable to afford.
Another proposal, separate to the above, is to either require companies to maintain memorandum accounts (similar to imputation credit accounts) for available subscribed capital (ASC) and available capital distribution amounts (ACDA), or to treat companies who have not elected to keep these accounts as being deemed to have nil ASC or ACDA. The latter would mean all distributions from the company would be a taxable dividend.
If memorandum accounts are kept, there is a proposal to require these accounts to be retained for the life of the company, not just the standard 7 years.
The proposals as drafted have very wide-reaching consequences, as essentially Inland Revenue could end up taxing amounts as dividends that have already been taxed in the Company.
The closing date for submissions to Inland Revenue is 5 February 2026.
Please reach out to your Nexia advisor if you would like to understand how these proposals may impact you.
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