Shareholder current accounts – An insolvency practitioners perspective

Notes on Article:
Released 4 December 2025
IRD notes the loan will become income once it is not repayable.

Shareholder current accounts

A Shareholder loan account or Shareholder Current Account is a running account between a shareholder of a company and the company itself. A running account is the sum of, broadly speaking, the components of a current account which are are:

• Debits (Increase debt owed): Drawings, personal expenditure (company paying directors personal fees)
• Credits (Decreases debt owed): Funds introduced by the shareholder, shareholder salary and dividends declared

Simplified, a shareholder current account tracks personal expenses and funds taken out of a company by a shareholder; it is treated as a loan repayable by the shareholder until the company declares a dividend, shareholder salary or the shareholder introduces funds adequate money to repay the balance.

Inland Revenue discussion paper

Inland Revenue recently released a consultation paper on shareholder loans; they’re worried that the prevalence of shareholder current accounts are resulting in lost tax.

In summary

• Shareholders are maintaining large current account balances, meaning they are delaying paying tax at their marginal rate (which can be as high as 39% in contrast to the company tax rate which is 28%)
• Companies are being removed from the register with outstanding shareholder loans. When this becomes taxable income for the shareholders is currently unknown.

Shareholder loan balances statistics from IR

In terms of shareholder current accounts of New Zealand companies, Inland Revenue advises:

1. For the income year ended 31 March 2024, approximately 119,000 companies (about 16% of the total 730,000 companies) were owed a total of nearly $29 billion by 165,000 shareholders who were natural persons or trustees
2. For the income year 31 March 2024 the average shareholder loan (from the company) was over $245,000 per company or $177,00 per shareholder
3. Annual growth in shareholder loans has increased approximately 8.7% per annum from 1997 to 2023

Inland Revenue’s data suggests that 27,000 of the 184,000 companies which were removed from the register owed a total of $2.28 billion by shareholders who were natural persons or trustees in their last field company shareholder return. Of these companies:

1. Approximately 123,000 were removed by the registrar of companies, generally because annual returns were not filed by the company. Of these companies 15,000 had outstanding shareholder loans totalling $935 million; this equates to $55,000 of outstanding shareholder loans per company removed.
2. Approximately 49,000 companies were removed at the request of the shareholders. Of those companies, 10,000 had outstanding shareholder loans totalling $923million; $92,300 Shareholder loans were outstanding per company.
3. Approximately 10,000 were removed following a formal liquidation process. Of those companies, approximately 2,000 showed shareholder loans, totalling $426 million. On a per company basis this is $213,000 per company.

When is taxation due on current accounts currently? (according to Inland Revenue)

From a taxation perspective, Inland Revenue advises that taxation on current accounts only occurs when:

1. Interest charged on overdrawn shareholder current accounts is less than the prescribed interest rate;
2. Repayment is not required, for example, the loan is forgiven.

In a situation where the company is removed from the register, Inland Revenue notes that the loan becomes property of the crown and is technically still payable. This means that the loan only becomes income (and taxable) when the loan expires under the statute of limitations. The end result is an uncertain timeframe of ten to fifteen years before the unpaid shareholder loan would be considered income for the shareholder.

This is in contrast to dividends which are taxable immediately at the marginal tax rate of the shareholder.

How are shareholder loan accounts treated in the OECD Per Inland Revenue?

In contrast to other OCED countries, New Zealand appears to have generous law when it comes to taxing shareholder loan accounts. The general treatment of other countries in the OECD is:

• Australia: Undocumented shareholder loans must be repaid within 10 months of the due date of the relevant year. If it is not repaid, an unimputed dividend is made to the shareholder. Documented shareholder loans can be repaid within 7 years (if unsecured) or 25 years (if secured against real property), subject to criteria.
• United Kingdom: Shareholder loans will be taxed at 33.75% if not repaid within nine months of the end of the accounting period. The tax is payable by the company not the shareholder.
• Canada: Shareholder loans are taxed at the shareholders marginal tax rate unless they are repaid within one year of the end of the company’s taxation year.
• Norway: A shareholder loan is taxed as a dividend for the shareholder unless it has been repaid within 60 days.

The overarching treatment of the above OCED countries is that excessive shareholder loans are not tolerated and will be deemed as taxable dividends shortly.

Notably, Inland Revenue does not elaborate on the tax policy for the United States, or the Republic of Ireland.

Inland Revenue’s solution

Excessive Current Account Balances

Inland Revenue is proposing shareholder current account balances over $50,000 be treated as a ‘deemed dividend’ for taxation purposes. This means that the outstanding shareholder current account balance would be considered taxable income if they are still outstanding 12 months after the end of the tax period and over the $50,000 threshold.

Removal of company from Register

Inland Revenue is proposing that once a company is removed from the register, any outstanding shareholder current account balances are deemed income upon the company’s removal from the register.

How current accounts  and shareholder remuneration work

In my experience, when it comes to most SMEs the director / shareholder works in the business of the company. Under current law, there are a few ways they can pay themselves:

Director / Shareholders’ Remuneration
Method	Description
PAYE Wages	The shareholder is paid on a regular basis along with other employees. Tax is deducted as PAYE, paid to Inland Revenue and the shareholders receive the net amount into their account.
Consulting Fees	The shareholder will have a separate legal entity and invoice the company for ‘directors fees’ or management fees or similar. In this instance it is treated as an expense for the company.
Dividends	A dividend is declared where the shareholders’ current account is reduced. The dividend is considered taxable income for the shareholder in the taxable year it is declared.
Shareholder salary (end of year)	Shareholder salary will be declared in a journal entry (usually end of year) crediting; reducing the current account and resulting in income for the shareholder. It’s common practice for the residual profit of a company to be allocated as shareholder salary.
Current Account – Drawings / Personal expenditure (without dividends / shareholder salary)	In this situation, a director will take payment as drawings which is treated as a loan. The loan balance will continuously increase with no dividends or shareholder salary being declared.

It should be noted that, a combination of these methods can be employed. For example:

1. A shareholder can take drawings throughout the year, increasing the current account balance and declaring shareholder salary at the end of the financial year; or
2. A shareholder can take regular PAYE wages and take occasional drawings or put personal expenses on the company credit card (increasing the shareholder loan account)

For PAYE wages, consulting fees, dividends and shareholder salary the shareholders are incurring a personal tax obligation in a timely manner.

However, as noted by Inland Revenue (and as seen in practice) it is currently possible for directors / shareholders to continuously take drawings, increasing their current account balance.

To illustrate the above, assume a shareholder is paid $1,000.

*Simplified, assuming 33% tax rate and no other obligations (ie ACC, superannuation).

Shareholder Current Account
	PAYE Wages	Shareholder salary	Drawings
Remuneration	1,000	1,000	1,000
Personal Tax (on payment)*	330	0	0
Personal Tax (end of  tax year)	0	330	0
Benefit (net of tax, end of year)	670	670	1,000
Shareholder Current Account	0	0	1,000

For PAYE wages, the tax obligation is deducted at the same time the shareholder is paid, this means that the shareholder receives $670 and all tax is paid immediately.

For shareholder salary (end of year), the shareholder initially receives $1,000, but when shareholder salary is declared at the end of the year, the shareholder must then pay the personal tax obligation for this payment. The tax obligation is delayed, but still payable within the same income tax year.

For drawings on the other hand, the shareholder receives $1,000 as a loan. There is no personal tax obligation until dividends or shareholder salaries are declared. The Company may never declare shareholder salary, nor declare dividends, meaning the shareholder has a delayed (or never occurring) personal tax obligation.

Simply put, when only taking drawings the shareholder is not paying tax on the money being received, instead they are receiving $1,000 with tax to be paid at an unknown time in the future. The law in New Zealand allows shareholders to continuously take drawings over several years increasing their loan account balance. Based on the information from Inland revenue, a large number are seemingly never repaying these loan accounts, instead opting to allow the company to be removed (be it by the register, through action taken by them, or liquidation).

Shareholder current accounts and insolvency

Ideal remuneration

In my opinion, for most SMEs, especially those where the shareholder works in the business, shareholder remuneration should be paid as PAYE wages.

It allows for straightforward forecasting of expenses and avoid problems if the company runs into trouble.

While PAYE wages is not currently an optimal tax planning strategy as the tax is paid far earlier than other methods, I find shareholders taking solely drawings (whether declaring shareholder salary or not) often use the extra money to fund their personal lifestyles, not reinvest in the business. The lack of immediate tax obligation creates a false economy and sense that the shareholders can maintain a lifestyle they can’t afford if their personal tax obligations are factored in.

Current accounts in insolvency

If a company is trading profitably, maintaining a current account does not have that many adverse consequences (other than interest being charged to the shareholder). However, if the company runs into financial distress (ie becomes insolvent) and is liquidated, the shareholder is liable to repay the current account to the liquidator.

In many cases, especially where shareholder salary / dividends have not been declared for several years, the shareholder simply cannot repay the amount owed.

For example, it is common for shareholders to have overdrawn current accounts anywhere between $50,000 to $200,000 (sometimes more), simply because they were paying themselves drawings for one to two years (or more) prior to liquidation.

It is also common that many shareholder current accounts are not collectable after factoring in the directors’ personal assets.

Comments on Inland Revenue’s solution

Inland Revenue’s solution is a pragmatic solution which brings New Zealand in-line with the OECD.

Many liquidations we administer feature both overdrawn current accounts and outstanding tax debt. It is a common feature that current accounts will become progressively overdrawn over several years, the deemed dividends will serve to disincentivise large current account balances which will never be repayable by the shareholders.