Overdrawn Shareholder Current Account NZ: Fix by 31 March
Shareholder current account: the number that quietly creates a tax bill
The short answer: your shareholder current account is the running tally of money you have put into your company minus what you have taken out. Take out more than you put in and the account is overdrawn — legally, the company has lent you money. If no interest is charged, IRD treats the benefit as a fringe benefit (FBT) or a deemed dividend, worked out at IRD's prescribed interest rate: 5.77% from 1 January 2026. The fix is to clear the balance before 31 March with salary, a dividend, or repayment.
What is a shareholder current account?
IRD defines it as "a record of the net balance of funds the shareholder has loaned to and withdrawn or borrowed from a company." Put $20,000 in at start-up and the account is $20,000 in credit — the company owes you. Every transfer to your personal account, every private bill on the company card, every school fee or mortgage payment the company covers, reduces it. Below zero, it is overdrawn.
Nobody notices because drawings happen weekly, while shareholder salary is usually set only after 31 March — the exact pattern IRD's fact sheet IS 24/09 (November 2024) describes.
How does an overdrawn account create a tax bill?
IRD's position: "Being overdrawn indicates the company is lending the amount of the overdrawn balance to the shareholder." An interest-free loan from a company to its owner is a benefit, and one of two rule sets applies:
- You work in the business (shareholder-employee): FBT. The company must "pay FBT on the difference between the prescribed rate of the daily interest calculated on the overdrawn current account, and the actual interest charged and debited."
- You are a shareholder only: the dividend rules. The interest you were not charged is a deemed dividend, taxed to you at your personal rate (10.5% to 39%).
The benefit is measured at IRD's prescribed rate, reset quarterly:
| Period | Prescribed interest rate |
|---|---|
| From 1 January 2026 | 5.77% |
| 1 October – 31 December 2025 | 6.29% |
| 1 April – 30 June 2025 | 7.38% |
| 1 October 2023 – 31 March 2025 | 8.41% |
Example: $60,000 overdrawn for a full quarter at 5.77% is roughly $860 of benefit, about $3,460 across a year. The tax on that is the direct cost; the indirect costs are FBT returns to file, a balance that grows every year, and — if the company ever writes it off — the whole forgiven amount becoming your income.
How do I fix it before year end?
| Method | How it works | Tax effect |
|---|---|---|
| Shareholder salary | Credited to your account; can be dated back to the later of the start of the year or the date the account went overdrawn | Taxed to you at personal rates; deductible to the company (28%) |
| Fully imputed dividend | Declared and applied against the balance, same backdating rule | Taxed to you with imputation credits attached |
| Repay in cash | Transfer money back before 31 March | No income tax; the company needs the cash |
| Charge interest at the prescribed rate | Interest debited quarterly | Income to the company; RWT and reporting may apply |
The right mix depends on company profit, your other income and imputation credits — the February–March planning conversation in our company and trust compliance service. A cash-flow forecast of drawings stops it overdrawing next year.
Can I just charge myself interest instead?
Yes: IRD's fact sheet confirms that interest "at the prescribed rate" means "no dividend or fringe benefit arises." But that interest is taxable income to the company and "usually non-deductible to the shareholder", and RWT withholding may apply. You have swapped a tax problem for an administration problem, and you still owe the money.
Is the law changing?
Two developments, read on official pages on 3 September 2026:
- Enacted. The Taxation (Budget Measures) Act 2026 (Royal assent 5 June 2026) taxes a shareholder on an outstanding loan six months after the lending company is removed from the Companies Register. Closing the company no longer makes the balance disappear.
- Proposed, not yet law. IRD's consultation of 4 December 2025 would treat shareholder loans as dividends if not repaid within 12 months from the end of the income year they were made, once a company's total lending to shareholders reaches $50,000.
FAQ
What does "overdrawn shareholder current account" mean in my financial statements? Over the life of the company you have taken out more than you put in or were paid as salary or dividends, so the company is recorded as having lent you the difference. It describes where the cash went; it is not an error.
Can I fix an overdrawn current account after 31 March? Partly. A shareholder salary or fully imputed dividend paid after year end can be credited back to the later of 1 April or the date the account became overdrawn, which is why year-end accounts often resolve it. Planning salary and drawings during the year is cleaner.
Does it matter if my company made a loss? Yes, and it is harder. With no profit there may be no imputation credits for a dividend, and a salary large enough to clear the balance deepens the loss. Repayment or charging prescribed-rate interest may be what remains. Each case needs looking at properly.
Does this apply if my company owns a rental property? Yes. Rent flowing into the company and out to you as drawings creates the same overdrawn balance, and the rental property accounts must show it. The fixes are the same.
Talk to us
If "shareholder current account" appeared on your last accounts and nobody explained it, book a free 15-minute consultation: call 021 202 4028, email info@optimalaccountants.co.nz, or use our contact page. Ted Liang, Chartered Accountant (CA ANZ), Optimal Accountants Limited, Level 3, Candida Building, 4/61 Constellation Drive, Rosedale, Auckland. English and Mandarin. See also tax and GST returns and all services.