Company Loans to Shareholders NZ: 2026 Tax Rules Explained
Company loans to shareholders NZ are common in closely held businesses, particularly where business owners use shareholder current accounts to manage short-term cash flow. However, an overdrawn shareholder current account can create tax consequences, particularly where interest is not charged or is charged below the relevant rate.
New Zealand also introduced an important 2026 change affecting outstanding shareholder loans when a company is removed from the Companies Register. This means businesses should understand how shareholder loans are recorded, how interest is treated and what happens when a company is closed.
Company Loans to Shareholders NZ: Quick Answer
A company loan to a shareholder is generally an amount advanced by a company to a shareholder that the shareholder is expected to repay. It may be formally documented as a loan or may arise through an overdrawn shareholder current account.
Under the existing rules, the principal amount of a genuine shareholder loan is generally not taxable income simply because it has been advanced. However, tax consequences can arise where the loan carries no interest or insufficient interest, where the loan is forgiven or where other shareholder distribution rules apply.
In 2026, legislation also introduced a rule concerning outstanding shareholder loans when the lending company is removed from the Companies Register. The new rule can result in the shareholder being taxed on the outstanding loan amount six months after the company is removed from the register.
Need Help With a Shareholder Current Account?
If your shareholder current account is overdrawn or your business regularly makes payments or loans to shareholders, it is important to understand the accounting and tax treatment before the balance becomes difficult to manage.
Talk to DFK Orb360 O’Halloran about your shareholder loan and tax position.
What Are Company Loans to Shareholders NZ?
Company loans to shareholders NZ are amounts advanced by a company to one of its shareholders with an expectation that the amount will be repaid.
The arrangement can take several forms. For example, a company may make a formal loan to a shareholder, transfer money to a shareholder for personal use or allow a shareholder to withdraw funds from the business bank account before salary or dividends have been determined.
In many small businesses, these transactions are recorded through a shareholder current account. Inland Revenue describes a shareholder current account as a record of the net balance of funds a shareholder has loaned to, withdrawn from or borrowed from a company.
When a shareholder withdraws more money from the company than they have put into it, the shareholder current account can become overdrawn. An overdrawn balance effectively represents money the company has lent to the shareholder.
Inland Revenue’s shareholder current account guidance explains the tax implications of overdrawn balances.
How Does a Shareholder Current Account Work?
A shareholder current account records transactions between the company and the shareholder.
| Transaction | Typical effect on shareholder current account |
|---|---|
| Shareholder puts money into the company | May create a credit balance in favour of the shareholder |
| Company pays a private shareholder expense | May increase the amount owed by the shareholder |
| Shareholder withdraws company funds | May increase the debit balance |
| Salary is credited to the shareholder | May reduce the amount owed |
| Dividend is credited to the shareholder | May reduce the shareholder loan balance |
| Shareholder repays the company | Reduces the amount owed |
The account should be reviewed regularly rather than only at the end of the financial year. This helps identify whether the shareholder is building up a significant debit balance and whether appropriate interest or other tax treatment needs to be considered.
Are Company Loans to Shareholders NZ Taxable?
The tax treatment depends on the circumstances surrounding the loan.
A genuine loan is generally expected to be repaid. The principal amount is therefore not automatically treated as taxable income merely because the company has advanced the money to the shareholder.
However, the tax position can change where the company charges no interest or interest below the applicable prescribed or market rate, where the loan is forgiven, or where the transaction is effectively a distribution to the shareholder.
Inland Revenue states that an overdrawn shareholder current account can have tax consequences, including dividend or Fringe Benefit Tax implications depending on the circumstances.
What Happens When a Shareholder Current Account Is Overdrawn?
An overdrawn shareholder current account means the shareholder has withdrawn or borrowed more from the company than they have contributed or loaned to it.
This situation is common where business owners use company funds for personal expenses throughout the year and the final salary or dividend position is determined later.
An overdrawn account should not simply be treated as another business expense. Inland Revenue specifically states that a company cannot claim an income tax deduction for shareholder drawings because drawings are not an expense of the company.
The account should instead be properly recorded and reviewed as a shareholder loan or current account balance.
Does Interest Need to Be Charged on a Shareholder Loan?
Interest can be an important part of the tax treatment of company loans to shareholders NZ.
Where an overdrawn shareholder current account exists, the company and shareholder may agree that interest is payable at the prescribed rate or market rate.
Inland Revenue states that interest charged to the shareholder is generally taxable income to the company and is usually non-deductible to the shareholder. There can also be withholding and investment income reporting obligations depending on the circumstances.
If the company charges interest below the applicable prescribed or market rate, or does not charge interest, additional tax consequences may arise.
Important
The correct treatment depends on the nature of the loan, the relationship between the shareholder and company, the interest charged and how the transaction is documented. A shareholder current account should not be treated as a simple personal overdraft without considering the tax implications.
Can a Shareholder Loan Create FBT?
Yes, in some circumstances.
For Fringe Benefit Tax purposes, Inland Revenue states that a loan can include an overdrawn shareholder current account. Where the applicable conditions are met and the interest charged is below the prescribed or market rate, FBT can apply to the difference.
This means businesses should not assume that an interest-free shareholder loan is automatically tax-free.
The FBT treatment should be considered alongside the income tax and dividend rules applicable to the particular shareholder and company structure.
Read Inland Revenue’s guidance on low-interest loans and FBT.
Company Loans to Shareholders NZ: What Changed in 2026?
One of the most important developments for company loans to shareholders NZ in 2026 relates to companies being removed from the Companies Register.
The Taxation (Budget Measures) Act 2026 received Royal assent on 5 June 2026. Among other measures, the legislation introduced changes concerning outstanding loans from companies to shareholders.
Under the new rule, where a company is removed from the Companies Register, an outstanding shareholder loan can give rise to taxable income for the shareholder six months after the company is removed from the register.
The measure applies to companies removed from the Companies Register on or after 4 December 2025.
This is particularly relevant where a company is being closed while it still has an outstanding shareholder current account balance.
Read the Inland Revenue Taxation (Budget Measures) Act 2026 commentary.
What About the Proposed 12-Month Shareholder Loan Rule?
There has also been significant discussion around proposed changes to company loans to shareholders NZ.
In December 2025, Inland Revenue consulted on a proposal that certain new shareholder loans could be treated as dividends if they were not repaid within a specified period. The consultation proposal included a 12-month period from the end of the income year in which the loan was made and a proposed $50,000 threshold for total shareholder lending.
However, businesses should not present this proposed 12-month rule as if it were current law.
As at September 2026, the enacted 2026 legislation addressed the separate issue of outstanding loans when a company is removed from the Companies Register. The broader proposed time-limit rule should therefore be described as a policy proposal rather than an enacted rule unless and until legislation changes the position.
Read the Inland Revenue consultation on taxation of company loans to shareholders.
Company Loans to Shareholders NZ: Current Rules vs 2026 Change
| Issue | Position |
|---|---|
| Genuine shareholder loan | Principal is generally not taxable income simply because it is advanced. |
| Overdrawn shareholder current account | May create tax consequences and should be properly monitored. |
| Low or no interest | May result in dividend or FBT implications depending on circumstances. |
| Loan forgiveness | Can create taxable consequences for the shareholder. |
| Company removed from Companies Register | 2026 legislation provides a specific rule for outstanding shareholder loans, with taxation occurring six months after removal. |
| Proposed 12-month dividend rule | Was subject to consultation and should not be presented as current enacted law. |
Example of an Overdrawn Shareholder Current Account
Consider a company where a shareholder withdraws $80,000 during the year for personal purposes.
During the year, the shareholder may receive salary and other amounts from the company. If $30,000 is subsequently credited to the shareholder current account, the remaining balance could be $50,000 owed to the company, subject to the actual transactions and accounting treatment.
The company should then consider how the balance is treated, whether interest should be charged, whether the balance will be repaid and whether any dividend or FBT consequences arise.
The example demonstrates why shareholder drawings should be recorded throughout the year rather than reconstructed after the financial year has ended.
Shareholder Drawings vs Salary vs Dividend
Business owners sometimes use the terms drawings, salary, dividends and shareholder loans interchangeably. They are not necessarily the same thing for tax purposes.
| Payment type | General purpose | Tax consideration |
|---|---|---|
| Shareholder loan | Funds advanced with an expectation of repayment | Loan and interest rules need to be considered |
| Drawings | Shareholder withdrawals from company funds | Not automatically a deductible company expense |
| Salary | Payment for employment or services | Payroll and income tax obligations can apply |
| Dividend | Distribution from the company to shareholders | Dividend and imputation rules may apply |
The appropriate treatment depends on the company’s circumstances and the nature of the payment. An accountant can help ensure the transactions are recorded correctly.
What Happens If a Shareholder Loan Is Forgiven?
A shareholder loan is generally expected to be repaid. If a company decides that the shareholder no longer needs to repay an amount, the tax treatment needs to be considered carefully.
Inland Revenue identifies situations where repayment is not required, such as a loan being forgiven or becoming unrecoverable, as circumstances that can result in taxable income for the shareholder.
Businesses should therefore avoid simply writing off a shareholder current account balance without professional tax advice.
How Should Businesses Manage Company Loans to Shareholders NZ?
Businesses can reduce accounting and tax problems by putting a clear process around shareholder transactions.
1. Keep a Separate Shareholder Current Account
Record shareholder transactions separately from ordinary business expenses so the balance can be monitored throughout the year.
2. Record Private Expenses Correctly
If the company pays a shareholder’s private expense, record it appropriately rather than treating it as an ordinary business expense.
3. Review the Balance Regularly
Do not wait until year-end to discover that the shareholder current account has become significantly overdrawn.
4. Consider Interest
Where a shareholder owes money to the company, consider whether interest should be charged and what rate is appropriate.
5. Document Formal Loans
For larger or longer-term loans, consider having clear documentation covering the amount, interest rate, repayment expectations and other relevant terms.
6. Plan Before Closing a Company
If a company is being deregistered or removed from the Companies Register, review any outstanding shareholder loan before the company is closed.
7. Reconcile the Account With Your Accountant
Regular reconciliation can identify whether transactions have been incorrectly classified as drawings, salary, dividends, expenses or loans.
Common Company Loans to Shareholders NZ Mistakes
- Treating personal spending as a company business expense.
- Allowing a shareholder current account to remain overdrawn for long periods without review.
- Failing to consider interest on the shareholder loan.
- Assuming an interest-free shareholder loan has no tax consequences.
- Failing to document larger shareholder loans.
- Ignoring an outstanding shareholder loan when closing a company.
- Confusing shareholder drawings with salary or dividends.
- Waiting until the end of the financial year to reconcile shareholder transactions.
Why the 2026 Shareholder Loan Change Matters for Businesses
The 2026 change makes the treatment of outstanding shareholder loans particularly relevant when a company is being removed from the Companies Register.
Business owners considering closing a company should therefore review the shareholder current account before taking steps to remove the company from the register.
This is also a good reason for businesses with substantial shareholder loan balances to maintain accurate records and obtain tax advice before restructuring, winding up or deregistering a company.
Company Loans to Shareholders NZ: Business Checklist
Before the end of the financial year, ask:
- What is the current shareholder loan balance?
- Is the account in debit or credit?
- How much has the shareholder withdrawn during the year?
- Have all personal expenses been correctly recorded?
- Has interest been charged where appropriate?
- Could FBT or dividend rules apply?
- Are formal loan terms required?
- Is the company planning to be deregistered?
- Are there outstanding shareholder loans that need to be dealt with before the company is closed?
When Should You Speak to an Accountant?
Professional advice can be particularly useful when a shareholder current account has become significantly overdrawn, when the balance has been outstanding for a long period, when a company is being restructured or closed, or when the business is considering whether to use salary, dividends or shareholder loans to extract funds.
DFK Orb360 O’Halloran can help businesses review shareholder current accounts, understand the tax implications and plan appropriate accounting treatment.
Explore DFK’s tax advisory services in New Zealand.
Need Advice on Company Loans to Shareholders NZ?
If your business has an overdrawn shareholder current account or you are planning to close a company with an outstanding shareholder loan, DFK Orb360 O’Halloran can help you understand the accounting and tax considerations.
Company Loans to Shareholders NZ: Frequently Asked Questions
What are company loans to shareholders NZ?
Company loans to shareholders NZ are amounts advanced by a company to a shareholder that are expected to be repaid. They may be formal loans or arise through an overdrawn shareholder current account.
Is a shareholder loan taxable in New Zealand?
A genuine shareholder loan is generally not taxable income simply because the principal is advanced. However, interest, forgiveness, distributions and other circumstances can create tax consequences.
What is a shareholder current account?
A shareholder current account records the net amounts a shareholder has loaned to, withdrawn from or borrowed from a company.
What happens when a shareholder current account is overdrawn?
An overdrawn shareholder current account means the shareholder owes money to the company. Depending on the circumstances, income tax, dividend or FBT implications may arise.
Does a company have to charge interest on a shareholder loan?
The tax treatment of interest depends on the circumstances and the applicable rules. Where an overdrawn shareholder current account exists, businesses should consider the appropriate interest treatment rather than assuming that an interest-free arrangement has no tax consequences.
Can a shareholder loan create FBT?
Yes. Inland Revenue’s FBT rules can apply to low-interest loans, including certain overdrawn shareholder current accounts.
What changed for company loans to shareholders NZ in 2026?
2026 legislation introduced a rule relating to outstanding shareholder loans when the lending company is removed from the Companies Register. The shareholder can be taxed on the outstanding amount six months after the company’s removal.
Is the proposed 12-month shareholder loan rule law?
The 12-month rule was part of Inland Revenue’s consultation on the taxation of company loans to shareholders. It should not be presented as an enacted rule unless subsequent legislation changes the position.
What happens to a shareholder loan when a company is deregistered?
Businesses should review outstanding shareholder loans before deregistration. Under the 2026 legislation, an outstanding loan can result in taxable income for the shareholder six months after the company is removed from the Companies Register.
Can an accountant help with an overdrawn shareholder current account?
Yes. An accountant can review the shareholder current account, reconcile transactions, consider interest and tax implications, and help plan the treatment of outstanding balances.
Related DFK Resources
- Tax Advisory New Zealand
- Tax Expert NZ
- Small Business Accountants in New Zealand
- Accountants in Wellington
- Contact DFK Orb360 O’Halloran
Official New Zealand Tax Resources
- Inland Revenue – Shareholder Current Account
- Inland Revenue Tax Technical – Overdrawn Shareholder Loan Account Balances
- Inland Revenue – Low-Interest Loans and FBT
- Inland Revenue – Taxation (Budget Measures) Act 2026
- New Zealand Legislation – Taxation (Budget Measures) Act 2026
- Inland Revenue Tax Policy – Consultation on Taxation of Company Loans to Shareholders
Company Loans to Shareholders NZ: Key Takeaways
- Company loans to shareholders are common, but they need to be recorded and monitored correctly.
- An overdrawn shareholder current account means the shareholder owes money to the company.
- Shareholder drawings are not automatically deductible company expenses.
- Interest and low-interest loan rules can create tax or FBT consequences.
- Forgiving an outstanding shareholder loan can have tax consequences.
- The 2026 legislation introduced specific rules for outstanding shareholder loans when a company is removed from the Companies Register.
- The previously consulted 12-month rule should not be described as current law unless subsequently enacted.
- Businesses should review significant shareholder loan balances before restructuring or closing a company.
Disclaimer: This article provides general information about company loans to shareholders NZ and should not be treated as personalised tax or accounting advice. Tax treatment depends on the specific circumstances of the company, shareholder, loan and transactions involved. Speak with a qualified accountant or tax adviser before making decisions about shareholder loans, distributions, company restructuring or deregistration.
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