12 June 2026
Budget 2026 may not have been pitched as insolvency focused, but in practice, that’s exactly what parts of it deliver.
Two changes stand out. First, unpaid shareholder current accounts will now be taxed six months after a company is liquidated or struck off. Second, Inland Revenue is getting a further $15m per annum to sharpen its enforcement capability.
Anyone working in insolvency will recognise the problem immediately.
Overdrawn shareholder current accounts have long been a fixture of SME failure. A business gets into trouble, drawings have accumulated, and the balance sheet shows a receivable from the shareholder that is rarely recoverable in any practical sense. The company fails, the loan sits there, and in many cases nothing further happens. You cannot get blood from a stone. From a tax perspective, it has historically been possible for that economic benefit to escape the system entirely.
The scale is not trivial. Inland Revenue data shows roughly 119,000 companies were owed nearly $29 billion by shareholders as at March 2024. That figure tells its own story, this has never been an edge case, but it is a very real problem.
Budget 2026 changes the outcome in a very direct way. If that loan is still sitting there six months after the company is removed from the register, it is treated as taxable income of the shareholder. No recovery required. No argument about intent. The system simply steps in and taxes the result.
From an insolvency perspective, that is a fundamental shift.
The traditional “it will never be recovered” narrative no longer ends the analysis. It just changes who bears the cost. Previously, the loss often fell on creditors and, indirectly, the tax base. Now, it sits with the shareholder in a very real and unavoidable way.
That will drive behavior and quickly.
Directors and advisers are far less likely to ignore large debit current accounts as pressure builds in a business. Expect to see more attempts to clean up positions before a formal insolvency event, whether through dividends, salaries, or cash repayments where possible.
Layered on top of this is the increase in Inland Revenue funding.
An extra $15m per annum is not about optics, it is about capability. Inland Revenue has been signaling for some time that it sees shareholder loans as an area of concern, particularly where companies are wound up with those balances still outstanding. The current rules, in IRD’s view, have allowed too many situations where tax is deferred and ultimately never collected.
With more resources, that concern will translate into action.
In practical terms, Inland Revenue is likely to be more visible earlier. More queries. More intervention before insolvency. The days of IRD sitting passively letting the debt grow are probably numbered, with a growing debtor book the government of the day is providing them with clear instructions to go collect what is owing.
For those advising directors, the message is simple. Shareholder current accounts can no longer be left to drift and need to be addressed ideally in the year they are being incurred to lessen the impact of having to deal with multiple years at one time. What was once a grey area is becoming black and white.
None of this will reduce insolvency volumes, it will likely cause it to grow with increased enforcement. But it will change how insolvencies play out and who ultimately pays.