This week IRD published new guidance on a number of tax issues relating to overdrawn shareholder loan account balances of New Zealand resident close companies, with amounts owed to the company by NZ resident shareholders.
Family-owned and operated small businesses often trade through close companies. Because of the level of control, shareholders may be able to draw company funds for private purposes. These are recorded in “shareholder loan accounts”, also often referred to as a “shareholder current account”. Shareholder loan accounts are typically informal arrangements between companies and shareholders that keep track of any advances made.
Interpretation Statement (IS) 24/09 discusses various issues including:
- Dividend income arising when shareholders pay no / low interest on overdrawn shareholder loan accounts
- FBT liabilities where shareholder-employees pay no / low interest on overdrawn shareholder loan accounts
- Interest income for the company
- RWT implications
- Deductibility of interest
- Application of the investment income reporting rules
- What happens where a loan amount is forgiven/remitted – financial arrangement and dividend rules
If you have any questions about the tax treatment of overdrawn current accounts, please get in touch with one of the team.