What Is a Shareholder Current Account and Why Is IRD Suddenly Paying Attention?

If you’re a company owner who pays yourself through sporadic drawings  rather than a structured  shareholder salary, this one’s for you.

A shareholder current account is simply the running total of what you’ve put into your company versus what you’ve taken out via drawings and funds introduced. If you’ve taken out more than you’ve contributed, you’ve got an overdrawn shareholder current account.

And with proposed IRD changes on the table, this is no longer something to leave in the “we’ll sort it at year end” basket.

Let’s break it down in plain English.

In simple terms, what is a shareholder current account?

A shareholder current account is a record of money moving between you and your limited company.

• Put money into the business? It increases.

• Take money out? It decreases.

• Take out more than you’ve put in? It goes negative.

When it’s negative, that’s called an overdrawn shareholder current account.

Here’s what it looks like in real life: the company has effectively lent you money and you owe it back.

And this only applies to limited companies. Sole traders and partnerships operate differently.

How does a shareholder current account become overdrawn?

Usually? Slowly. Quietly. Without anyone meaning to cause chaos.

We commonly see:

• Business owners paying themselves through drawings instead of a planned and structured shareholder salary

• Regular transfers to cover living costs

• Topping up personal income during strong cashflow months

• Personal expenses running through the business

It’s sometimes reckless spending. But it’s usually for flexibility.

Many company owners choose drawings because it feels easier than managing payroll and paying PAYE. You take what you need, when you need it. And we get it. When you’re running a business, simpler feels better.

The issue isn’t the drawings themselves. It’s the lack of structure around them.

It’s often cultural. In New Zealand, there’s still a mindset of ‘it’s my business, it’s my money. Legally though, your company is its own entity. The profit belongs to it first, not you personally.

It’s a small distinction… Until your shareholder current account starts telling a different story.

Why is IRD focusing on overdrawn shareholder current accounts now?

Inland Revenue has launched consultation on proposals to tighten how company loans to shareholders are taxed.

The key change is a time limit rule. If new lending to shareholders reaches $50,000 or more and isn’t repaid within 12 months from the end of the income year it was made, it could be treated as a dividend, which means tax consequences.

The proposal applies to new loans, not existing balances. But if you’re regularly taking drawings instead of a structured shareholder salary, that $50,000 threshold can arrive faster than expected.

This is very much a “get ahead of it” moment.

Can I use company money to offset my personal mortgage?

Short answer? Be very careful.

One of the most common situations we see is business owners taking a lump sum from their company and putting it into their personal account to offset their home mortgage.

Often this is suggested by a mortgage broker. At first glance, it sounds like a no-brainer. Lower mortgage interest? Yes please.

Where it gets tricky is this.

That lump sum is usually recorded as drawings. Which increases your overdrawn shareholder current account. And if it’s large enough, it can push you straight over the proposed $50,000 threshold.

Just remember, mortgage brokers are not tax advisors. They’re looking at lending structures, not tax consequences. And what looks like smart cashflow planning on one side can quietly create tax consequences on the other.

If you’re considering using company funds this way, talk to your accountant first. Because spreadsheets have very long memories and so does IRD.

What are the risks of leaving an overdrawn shareholder current account sitting there?

Under current rules:

• Interest must be charged on the overdrawn balance

• That interest is income to the company

• The shareholder still owes the original amount

• The balance doesn’t reduce unless action is taken

From a practical perspective:

• It doesn’t look great on your balance sheet

• It can complicate selling your business

• It creates exposure if the business hits trouble

And under proposed changes, large uncleared balances may be treated as a dividend to the shareholder, which means tax consequences.

Which means an overdrawn shareholder current account isn’t just a line in the accounts. It can quickly become a line on your tax bill.

What happens if the business goes into liquidation?

No one starts a business planning for this, but it’s important to know how it works.

If your company goes into liquidation and you have an overdrawn shareholder current account, that balance is treated as money you owe the company.

In other words, it becomes a debt and the only way to clear that debt is by declaring the balance as a dividend and paying the resulting tax.

We’ve seen increased business pressure over recent years and overdrawn balances are one of the things that can cause significant personal stress during liquidation. Not because anyone set out to create a problem, but because the numbers have real-world consequences.

If you owe the company $80,000, $150,000 or more, that doesn’t automatically disappear just because the doors close.

It’s far easier to address your shareholder current account while the business is healthy than when it’s under pressure.

At what point does an overdrawn shareholder current account become a real problem?

There is no magic number. It depends on the size and context of your business.

For one company, $10,000 might be significant. For another, even $200,000 might not be material relative to turnover and profit.

What really matters is the bigger picture. It becomes a genuine issue when:

• The balance is large relative to the business

• It’s growing year after year

• There’s no clear plan to clear it

• Repayment would take a long time

If it’s material and there’s no structure around it, that’s when it moves from minor annoyance to genuine financial risk.

Why do so many business owners get a surprise at tax time?

Because drawings rarely feel significant in the moment.

It’s $2,000 here. $5,000 there. A sporadic transfer instead of running a planned PAYE or shareholder salary payment. Maybe topping up income when cashflow allows.

Then we get to 31 March, and the total drawings for the year are $140,000.

It’s more common than people realise and it rarely happens in one dramatic swoop. It’s usually a slow drip. A transfer for this, a payment for that and the shareholder current account just keeps ticking along in the background. Business owners genuinely don’t realise how quickly it accumulates when there isn’t a structured system in place.

It’s not about blame. It’s about visibility. Because surprise numbers at tax time are no one’s favourite plot twist.

How do you actually fix an overdrawn shareholder current account?

There are two main approaches.

1. Declare a dividend or shareholder salary

This is the proper “clear it” option.

You formalise the drawings already taken by declaring income to the shareholder as either:

• A non-cash dividend or

• A shareholder salary

This shifts the tax burden from the company to the individual and clears the overdrawn shareholder current account.

Which option is better depends on company retained earnings, imputation credits, company profitability, personal tax position and cashflow. There is no universal answer.

2. Charge interest and manage it

Charging interest on an overdrawn shareholder current account doesn’t fix the core issue. It simply ticks the compliance box under current legislation.

The principal remains. Interest joins the party and the number can gradually head north.

Sometimes this option is necessary. For example, if the company is running at a loss and can’t declare a shareholder salary or has no retained earnings to declare a dividend.

But it’s not a long-term strategy. It’s a holding position.

Should I be on PAYE instead of taking drawings?

Short answer? Maybe. Maybe not.

There’s no gold star for being on PAYE and there’s no villain badge for taking drawings. It comes down to structure.

For some business owners, running a regular PAYE salary creates rhythm. It smooths out cashflow, keeps tax tidy and avoids those “oh… that’s higher than I thought” moments at the end of the financial year.

For others, a mix of drawings and dividends works perfectly well.

We sometimes move clients onto PAYE. We sometimes move them off PAYE if they’ve built up a credit balance in their shareholder current account. Sometimes dividends make sense, especially where there are sufficient imputation credits and retained earnings sitting there waiting to be used.

There’s no magic one-size-fits-all formula we pull off a shelf.

It depends on things like:

• Cashflow

• The tax impact

• Company profitability

• Your personal income position

• And where you’re heading next

No two businesses are identical. That’s why tailored advisory matters. The right structure should fit your business, not someone else’s.

What should business owners be doing now?

Start with one simple question:

Do you actually know how much you’re drawing from your company each year?

If you’re regularly taking more than $50,000 in drawings and  don’t have a planned structure for a shareholder salary or dividend, it’s time to take a closer look. Clarity creates options. 

Here is where to start:

• Review your shareholder current account balance

• Confirm whether it’s overdrawn

• Talk through dividend versus shareholder salary options

• Put a structured plan in place that supports your goals.

Running a business is hard enough. Paying yourself shouldn’t be the confusing part. If you’re unsure where you stand, get in touch and let’s have a conversation. No lectures. No scare tactics. Just practical advice and a plan that works for you.

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About the Author

Haley Reyners is the founder of My Two Cents Accounting & Advisory and a Certified ICNZB Master Bookkeeper® — one of the highest recognitions in New Zealand’s bookkeeping profession. With over 20 years of experience, she’s passionate about helping small business owners find clarity, confidence, and calm in their finances. Haley leads her team with personality and purpose, breaking down complex accounting talk into everyday language that makes sense.