Shareholder Loans

In particular the IRD has a concern where shareholders borrow money from their companies rather than receiving income in the form of shareholder salaries or dividends. The IRD's perception is that with a top marginal tax rate for individuals/trusts of 39% and a company rate of 28% some shareholders are preferring to take loans from their companies (the loan itself currently does not trigger a tax liability) rather than taking income which will be taxed at the higher rates.

The issues paper therefore suggests that where shareholder loans are more than $50,000 and outstanding for more than 12 months the total value of the loan (even if subsequently repaid) would be treated as a taxable dividend to the shareholder.

The issues paper suggests that this should apply to all loans made after 4 December 2025 and would represent a significant change to our tax settings particularly for SMEs.

While the Inland Revenue is considering this issue, receiving submissions and making recommendations to government it may be prudent to ensure any loans that existed before 4 December 2025 are separated from any loans made after that date. That way if these rules are introduced then it is clear which loans will be affected.

We are aware that the Inland Revenue Department had this concern for some time (ie it it will be difficult to convince them that no action is required) however our view is that there is already a regime which requires interest to be charged on these loans and therefore addresses this issue. Accordingly, we see this as Inland Revenue Department looking for a problem to attach this solution to.

We will keep you up to date as this issue progresses.