The shareholder current account is one of the least understood lines on a small company’s balance sheet, and it is about to matter more.
What it actually is
The current account records the running balance between a shareholder and the company. It moves when money or value passes either way outside a formal salary or dividend.
In credit means the company owes you — you have put money in, or paid company expenses personally, or left profits in the business.
Overdrawn means you owe the company — you have drawn money out that has not been treated as salary or dividend.
An overdrawn account is a loan from the company to you, and it is a real debt. That is the part owners most often miss.
Why it accumulates
Rarely deliberately. The usual pattern is a small business owner drawing money through the year as they need it, with the accountant sorting out the treatment at year end. If drawings exceed what is declared as salary or dividend, the difference sits in the current account.
Personal expenses paid from the business account do the same thing. So does using a company vehicle or asset without the correct treatment.
Over several years the balance can become substantial without anyone deciding it should.
The consequences that already exist
Interest. An overdrawn account can attract deemed interest, and there are rules about the rate. Where interest is not charged, there can be a fringe benefit or dividend consequence.
It is an asset of the company. If the company fails, the liquidator can call in the loan — from you, personally. Owners who assumed limited liability protected them discover that a debt owed to the company is not covered by it.
It complicates a sale. A buyer looking at a company with a large overdrawn shareholder account wants it cleared before settlement, and clearing it has its own tax consequences.
It affects lending. Lenders read it as value extracted rather than reinvested.
What Budget 2026 adds
New rules will apply six months after a company has been liquidated or otherwise removed from the Companies Register, treating outstanding shareholder loans as income.
Inland Revenue expects the measure to generate around $146 million over the forecast period.
The target is the pattern where a shareholder draws money as a loan, never repays it, and winds the company up — extracting value without the tax that a distribution would attract.
Note that companies are removed from the register for administrative reasons too, not just deliberate wind-up. Over 3,000 companies a month are removed, many of them struck off for not filing annual returns. An owner who let a dormant company lapse with an overdrawn account may find the rule applies.
How to deal with it
The options, each with different consequences:
- Repay it — cleanest, and requires cash.
- Declare a dividend to clear the balance. Taxable to you, with imputation credits for tax the company has paid. Requires the board to be satisfied the company passes the solvency test.
- Take it as salary — deductible to the company, taxable to you, with PAYE and potentially KiwiSaver consequences.
- Formalise it as a loan with proper terms and interest, which addresses the deemed interest position but leaves the debt.
Which is best depends on your marginal rate, the company’s imputation credit position and its cash. That is a genuine advice conversation rather than a default.
The habit that prevents it
Decide how you are paid, and pay yourself that way. A regular salary or a planned dividend policy is administratively simpler than drawing ad hoc and reconciling later, and it makes the current account a small number rather than a growing one.
A separate business bank account is the precondition. Mixing personal and business transactions makes accounts expensive to prepare and obscures whether the business is actually working.
Ask the question
At your next meeting with your accountant, ask directly: is my shareholder current account in credit or overdrawn, by how much, and what should I do about it?
Most owners have never asked. Given the change coming, it is worth asking now.
Inland Revenue publishes guidance on shareholder-employee remuneration and company distributions free at ird.govt.nz.
The measure described was announced in Budget 2026 and remains subject to legislation. Confirm the current position with Inland Revenue or your accountant. General information only, not tax advice.
