Tax Change Could Leave Family Businesses Facing Bigger Bills
Family-owned businesses across New Zealand could soon be hit with unexpected tax bills as Inland Revenue (IR) moves to tighten rules around shareholder loans. The department has released a consultation paper proposing major changes to how loans from companies to their shareholders are taxed—an area IR says is being increasingly misused.
While short-term drawings and legitimate business loans are common practice, IR’s deputy commissioner for policy, David Carrigan, says the current rules are too lenient and allow some shareholders to avoid paying their fair share of tax. According to IR data, more than 5,550 companies had shareholder loan balances over $1 million for the 2024 tax year, and some of these loans may never be repaid. When companies are wound up, these unpaid balances effectively escape taxation altogether.
To address this, IR is proposing a new rule: any new shareholder loan not repaid within 12 months from the end of the income year will be treated as a dividend—and taxed as such. Only companies with more than $50,000 in total shareholder lending will be affected, and the change would apply only to new loans issued after December 5.
Carrigan says the goal is fairness. Shareholders who draw funds from their company without repaying them often pay less tax than employees or shareholders who receive taxable dividends. The proposal aims to close this gap.
However, tax experts warn the impact on small and family-run businesses could be significant.
Chartered Accountants Australia New Zealand spokesperson John Cuthbertson believes the $50,000 threshold is too low, capturing many small businesses that rely on current accounts for day-to-day flexibility. He argues that fully commercial loans—where proper documentation and repayment terms exist—should not be caught by the new rules.
He also acknowledges IR’s frustration with shareholders who take large sums from their business without the ability or intention to repay them, especially when companies later collapse with unpaid debts. But he stresses the need for a more workable, balanced approach.
Angus Ogilvie, managing director at Generate Accounting, agrees reform is necessary but criticises the retrospective nature of the proposal. Because IR wants the rules to apply from December 5 onward—before consultation feedback is reviewed or legislation drafted—businesses are unable to plan with certainty. Ogilvie urges IR to avoid rushing the process and instead respect New Zealand’s established Generic Tax Policy Process.
Meanwhile, Deloitte tax partner Robyn Walker points out that shareholder loans themselves are not the problem. Many small businesses rely on them for cashflow, and in most cases, balances fall below the proposed threshold. However, she warns that for businesses with blurred lines between personal and business spending, or those with growing shareholder current account balances, 2026 may need to be a year of financial restructuring.
Walker also highlights a fairness issue: long-term, unpaid loans can create a tax advantage compared to employees and sole traders who must pay tax immediately on their income.
As IR’s consultation runs through February, business owners—particularly those in family enterprises—should take the opportunity to engage, review their shareholder lending, and prepare for changes that could reshape how they access money from their companies.