IRD proposes major changes to the taxation of shareholder loans

Inland Revenue has released an Issues Paper proposing significant changes to how loans from companies to shareholders are taxed.

“Shareholder loans” means any amount loaned by a company to a shareholder, including formally documented loans and also overdrawn current accounts.

These changes aim to improve fairness in the tax system and address concerns that the current rules allow some shareholders to access company funds in a way that results in lower tax than if they were paid salaries or dividends.

Shareholder loans are common in small and closely held companies and are often used to manage cashflow or fund personal spending.

While many are short-term and repaid, IRD’s data shows a growing number of large, long-term loans - some exceeding $1 million, that in practice may never be repaid. Currently, these loans generally trigger only minimal tax (on interest shortfalls), creating what IRD sees as an unintended tax advantage.

The paper proposes three key changes:

1.      Loans not repaid within a set timeframe would be treated as taxable dividends.
This would apply to new loans made from the date the Issues Paper was released (5 December 2025) and only where total shareholder borrowing exceeds a de minimis threshold (e.g., $50,000).

2.      Outstanding loans would become taxable income when a company is removed from the Companies Register.
This targets situations where companies are struck off or liquidated while still owed shareholder advances.

3.      Improved record-keeping and reporting for available subscribed capital (ASC) and capital distribution amounts (ACDA).

If adopted, these changes are expected to encourage timely repayment of shareholder loans, increase tax fairness across business structures, and reduce losses to creditors and IRD in company failures.

These are currently “proposed changes” and Inland Revenue are asking for submissions by 5 February 2026.