Director Loan Accounts in NZ Companies: What New Directors Must Know
If you are a director-shareholder of a new NZ company, you need to understand the director loan account before you take money out. Getting this wrong triggers unexpected tax obligations.
One of the most common mistakes new NZ company directors make is treating the company bank account as a personal account. Taking money out without proper documentation creates a director loan account (also called a shareholder current account), and this can have serious tax consequences if not managed correctly.
What is a director loan account?
A director loan account records money that flows between you personally and your company. It can go two ways:
- Company owes you: You put personal money into the business (e.g. a startup loan, or paying for a company expense on your personal card). The company owes this back to you as a liability on its balance sheet.
- You owe the company: You take money out without a formal salary or dividend declaration. The company records this as a loan from the company to you. This is where things get complicated.
The IRD risk: FBT and interest obligations
If your company lends you money (you owe the company), the IRD may treat this as a fringe benefit, triggering Fringe Benefit Tax (FBT). The benchmark interest rate set by IRD for 2025-2026 is 8.41%. If you borrow from your company and do not pay at least this rate of interest, the difference is taxable as a fringe benefit.
The practical impact: a director who withdraws NZ$50,000 from their company without a formal salary arrangement owes FBT on the imputed interest. For NZ$50,000 at 8.41%, that is NZ$4,205 in deemed interest income to the company, attracting company tax of 28%, or NZ$1,177 in extra tax.
How to take money out correctly
There are three main ways to draw money from your company legally and tax-efficiently:
- Salary or wages: Subject to PAYE, ACC levies, and KiwiSaver. Straightforward, deductible to the company.
- Dividend: Paid from after-tax profits. May have imputation credits attached. Requires a formal shareholder resolution.
- Repayment of a genuine loan you made to the company: If you actually lent the company money, repaying that is not income. Keep clear records.
What your accountant should do
A good accountant will reconcile your director loan account at least quarterly. They should flag if the account is in debit (you owe the company) and advise whether a salary top-up or dividend is more tax-efficient. The first year of trading is when most mistakes are made.
Find a local accountant
If you are a new NZ company director unsure about your loan account or how to pay yourself correctly, connect with a local accountant through FreshFirms. We match new business owners with experienced professionals in their region. Free service.