Submission on improving taxation of loans made by companies to shareholders

Cooperative Business NZ made this submission to the Inland Revenue Department as part of its consultation on proposed changes to the taxation of loans made by companies to shareholders.

While the proposals are primarily aimed at closely held investor-owned companies, the submission focused on the potential unintended impacts for co-operatives and mutuals if member-owned ownership structures are not explicitly recognised in the design of any reforms.

The submission set out the distinctive characteristics of cooperatives and mutuals in New Zealand, including their participation-based ownership models, member capital arrangements, and the use of patronage and deferred payment mechanisms. It highlighted how these features differ fundamentally from investor-owned companies and why a one-size-fits-all approach risks misclassifying legitimate member activity as income extraction.

The submission also drew on practical examples from member-owned enterprises to illustrate how ordinary commercial arrangements, such as spread or deferred payment terms for goods and services, could be unintentionally captured by the proposed rules.

Submission at a glance

• Submitted by: Cooperative Business NZ 

• Date: February 2026 

• Submitted to: Inland Revenue Department 

• Policy area: Taxation of shareholder loans

• Format: Emailed submission (PDF) 

CBNZ position

The submission supports Inland Revenue’s objective of improving tax integrity and addressing extreme cases where shareholder loans are used to extract retained earnings in closely held investor-owned companies.

However, it outlines the view that cooperatives and mutuals operate under legislated ownership models that are structurally distinct from investor-owned companies. In these models, member balances often arise from participation, patronage, or arms-length business transactions rather than from the extraction of profits.

The submission argues that without explicit recognition of these differences, the proposals risk unintended consequences for co-operatives and mutuals, including increased compliance costs, inappropriate income recharacterisation, and reduced flexibility to support members during periods of financial stress or sector disruption.

Key issues addressed

• The distinctive ownership and capital structures of cooperatives and mutuals in New Zealand

• How member balances can arise from patronage, deferred payment arrangements, and business-to-business transactions rather than income extraction

• Risks associated with time-based recharacterisation of balances as taxable income

• The potential for liquidation rules to tax member capital rather than income

• Particular exposure of Companies Act cooperatives whose cooperative character is embedded in constitutions rather than statute

• The importance of policy coherence with other regulatory regimes and international practice.

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