Before a company is removed from the companies register, it is important to review and address any outstanding shareholder loans. This is because undesirable tax consequences in the form of taxable income may arise for the shareholder if the loan remains unpaid 6 months after the removal of the company from the register.
A new rule applies to companies removed from the companies register on or after 4 December 2025 that have shareholder loans (including overdrawn current accounts) that are still outstanding 6 months after the company’s removal. If this is the case then, in certain circumstances, the shareholder is treated as having been discharged from making all remaining payments without fully adequate consideration. The requirement to calculate a base price adjustment under the financial arrangement rules is triggered, which may give rise to taxable income for the shareholder.
As an example, say a company is removed from the companies register on 1 February 2026. At that date, its shareholder owes the company $80,000 on an overdrawn shareholder current account. If the amount remains unpaid on 1 August 2026, the shareholder may be required to calculate a base price adjustment under the financial arrangement rules, potentially resulting in taxable income.
The rule extends to funds lent to directors of a company as well as people associated with a shareholder or director of the lender company (for example, close relatives and spouses).
The perceived dilemma posed by outstanding shareholder loans was first flagged by Inland Revenue in an Officials’ Issues Paper released in late 2025 (see Inland Revenue, “Improving taxation of loans made by companies to shareholders”, 4 December 2025). Officials considered that the provision of funds by way of loans from companies to its shareholders gives rise to less taxation when compared to the payment of a dividend or a salary. This unintended advantage results in lower revenues, a less efficient tax system, and inequities.
The paper set out 2 specific proposals to remove the unintended tax advantage and improve the integrity of the tax system. Following public consultation, the government decided that the preferred option would be to tax outstanding shareholder loans that are not repaid within 6 months of a company’s removal from the companies register.
Under the alternative option, new loans made on or after 4 December 2025 would be treated as a dividend if the loan was not repaid by the shareholder within 12 months of the end of the income year in which it was made. Certain loans were excluded under the proposal, including loans falling below a $50,000 de minimis threshold. Due to public submissions that considered this to be an overreach, this option did not go ahead.
Inland Revenue have issued a new form IR315A which must be completed by companies seeking a letter of no objection to remove the company from the companies register. The form requires confirmation of whether loans to shareholders have been repaid in full, and if not, confirmation that the amount outstanding has been treated as a dividend. The form includes a note that states: “Loans owed to the company by shareholders include an overdrawn shareholder current account. Any loan balance that has not been repaid and has not been treated as a dividend will be income of the shareholders at the time that a base price adjustment is required (Income Tax Act 2007 sections EW 28-31). At that time, the amount must be declared as ‘Other income’ in the shareholders’ personal income tax return.”
The rule discussed above is expected to raise revenue for the government to the tune of $146 million over a 4-year period from 2025-26 to 2029-30, and $38 million per year after that.