However, NZ First opposes the idea and Act has reservations.
Speaking to the Herald, NZ First deputy leader Shane Jones said changing the tax treatment of shareholder loans would be a “major departure” from the status quo.
“That is not something that NZ First has ever agreed on.”
Meanwhile, Act’s finance spokesman, Todd Stephenson, said his party was concerned the proposal could amount to double taxation – “once when the loan is deemed taxable, and again when the shareholder has to use already-taxed income to repay the loan”.
“ACT opposes double taxation.”
However, Stephenson said, “If there are loopholes that allow income to escape tax permanently, they should be closed in a targeted way that doesn’t punish legitimate business activity.
“New Zealand’s tax system works best when it is simple, predictable, and neutral.”
Revenue Minister (and National Party MP) Simon Watts declined to share his view on the matter, saying ministers were still considering the “wide range of views” Inland Revenue received, and no decisions had been made on next steps.
‘Draconian’ or international best practice?
Inland Revenue expected the property sector to be most affected by its proposal, noting the main industries with outstanding shareholder loans were rental, hiring and real estate services (26% of the total value of loans), agriculture, forestry and fishing (18%), and construction (11%).
While Act positions itself as a low-tax party, NZ First prides itself on representing those in the agriculture, forestry and fishing sectors.
Inland Revenue couldn’t put a figure on how much more tax revenue it would collect, but said the point of the change would be to improve the fairness and integrity of the tax system.
Deloitte tax partner Robyn Walker agreed the proposal wasn’t a tax grab. Rather, she saw it as a way of unwinding something she believed was always too good to be true for some shareholders.
She believed it would also pull New Zealand into line with other countries.
Meanwhile, the Taxpayers’ Union went so far as to claim it was “draconian” – and an attack on small businesses and farmers in particular.
“Even Muldoon would blush,” its executive director, Jordan Williams, said.
The details
Inland Revenue explained that companies controlled by a few shareholders often legitimately lend to shareholders.
While most companies manage these loans responsibly, some shareholders rack up large debts over many years.
This could be advantageous to them.
While a shareholder will need to pay interest on the loan they receive from their company, and the company will need to pay 28% tax on this interest income, the shareholder won’t be taxed on the loan.
However, if the money were paid to them in the form of a dividend, salary or wage, they would need to pay tax on the income at their marginal income tax rate, which could be as high as 39%.
In the 2024 tax year, about 5500 companies were owed more than $1 million by their shareholders. Of these companies, more than 540 were owed more than $5m.
Inland Revenue said, “We are concerned that the high value of shareholder loans suggests that our current rules relating to shareholder loans are less effective than rules in other jurisdictions at requiring the loan be repaid within a certain period of time or before the company goes out of existence.
“This can result in the tax advantage becoming a permanent advantage for the shareholder if the loan is never repaid.”
Inland Revenue said that in the six years to 2025, nearly 15% of all companies removed from the Companies Register were owed money by their shareholders at the time they were removed.
Collectively, shareholders owed these companies $2b.
So, Inland Revenue also proposed taxing loans once a company ceased.
It also proposed treating loans as dividends if they weren’t repaid within 12 months after the end of the income year they were issued.
It suggested this apply to loans issued from December 4, 2025, onwards – meaning the law change would apply retrospectively.
To prevent the change from impacting small businesses and ordinary transactions, it would only apply to companies whose total lending to shareholders was worth $50,000 or more.
It would also only apply to companies owned by individuals or small groups of shareholders, as widely-held companies, partnerships and sole traders can’t use shareholder loans.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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