Shareholder Loan FBT Calculator NZ 2026

If a shareholder-employee in your close company has an overdrawn current account (the company has effectively lent them money), you must either charge interest at the IRD prescribed rate or pay FBT on the deemed low-interest loan. This calculator works out the after-tax cost to the shareholder family under each option, using the current 5.77% prescribed rate (from 1 January 2026) and the 28% NZ company tax rate. The result tells you which path leaves more money in the family's pocket.

Updated  Current IRD prescribed rate is 5.77% (from 1 January 2026). The rate is reviewed quarterly: check ird.govt.nz before each FBT return.
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Loan details

$
Use the average daily balance, or the simple average of opening and closing balance if it does not vary materially. For accounts that fluctuate widely, calculate FBT quarterly using the IRD daily-balance method.
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If the shareholder repaid the balance partway through the year, enter the months it was actually overdrawn.
% pa
Default is 5.77% (from 1 January 2026). Check the IRD quarterly rate before lodging your return.
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Standard NZ company tax rate is 28%.

Why overdrawn current accounts trigger FBT

When a shareholder-employee draws money out of a close company beyond their salary, dividends, or repayment of loans owed to them, the resulting debit balance in their current account is effectively a loan from the company to the shareholder. Because the shareholder is also an employee, this is an "employment-related loan" under section CX 10 of the Income Tax Act 2007. If the loan is interest-free or charged at less than the IRD prescribed rate, the difference between the prescribed rate and the actual rate is a low-interest loan fringe benefit subject to FBT.

The two compliance options

Option A: Charge interest at the prescribed rate

The company invoices the shareholder interest at or above the IRD prescribed rate (currently 5.77% from 1 January 2026). The interest is income to the company (taxable at 28%) and a payment by the shareholder. No FBT applies because the loan is no longer a low-interest loan. The interest must be either paid in cash or credited to (compounding) the current account; a notional journal with no economic effect is not enough.

Net family cost = interest amount × 28% (the company tax leakage on the interest income). The shareholder's payment is offset by the company receiving the same amount, so within the family unit the only cost is the tax paid on the interest as it passes through the company.

Option B: Pay FBT on the deemed loan

The company does not charge interest. It pays FBT on the taxable value, which is the balance × (prescribed rate − actual rate). At 63.93% single rate, FBT on a $50,000 interest-free loan for a full year at the 5.77% prescribed rate would be $50,000 × 5.77% × 63.93% = $1,844.39. The FBT itself is deductible to the company, generating a $516 tax saving, leaving a net family cost of $1,328.

Why charging interest almost always wins

The math always favours charging interest unless the shareholder cannot fund the payment. The reason is structural: FBT effectively taxes the same economic benefit (the deemed interest) at a much higher rate than the company tax that would apply to actual interest income. At the 63.93% single rate, the after-tax FBT cost is approximately 46% of the deemed interest amount; charging interest costs only 28%. The break-even FBT rate would be 39%, which means the alternate 49.25% FBT rate also makes charging interest the cheaper option.

Practical considerations

  • Cash flow. Charging interest requires the shareholder to either pay cash or have the interest added to (worsening) their already-overdrawn account. Some shareholders prefer to pay FBT and avoid further negative balance.
  • Compliance simplicity. Charging interest creates an annual journal but no FBT registration is needed (assuming no other fringe benefits). Paying FBT requires registration, quarterly returns, and the wash-up at year end.
  • Salary advance exemption. Loans up to $2,000 in a year are exempt from FBT under the salary advance rule. Don't bother with interest or FBT for small advances.
  • Repayment timing. If the shareholder repays the balance before year end, the FBT is calculated only on the days the loan was outstanding. The IRD provides a daily-balance worksheet for fluctuating accounts.
  • Quarterly rate changes. The prescribed rate is reviewed quarterly. If you charge a fixed rate for the year, ensure it is at or above the highest prescribed rate during the year, or you will have a partial FBT exposure.
  • Shareholder deduction. If the shareholder borrowed the money for an income-producing purpose (such as buying shares in another company that pays them dividends), the interest may be deductible to them, further reducing the net family cost.

Recent prescribed interest rates

FromRate
1 January 20265.77%
1 October 20256.29%
1 July 20256.67%
1 April 20257.38%
1 October 20238.41%

Sources

This calculator provides an estimate only. Always verify your treatment with a tax adviser or refer to ird.govt.nz. Charged interest must be commercially documented. Consider whether dividends, salary, or repayment of shareholder advances might better address the underlying overdrawn position.

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Frequently asked questions

Does FBT apply to overdrawn shareholder current accounts in NZ?

Yes. A debit balance in a shareholder-employee's current account is treated as a loan from the company. If the company does not charge interest at or above the IRD prescribed rate (currently 5.77% from 1 January 2026), the difference is a low-interest loan fringe benefit subject to FBT. The taxable value is the prescribed rate minus the actual rate charged, applied to the balance for the period.

Should I charge shareholder interest or pay FBT on an overdrawn account?

Charging interest at the IRD prescribed rate is almost always cheaper than paying FBT. At the 63.93% single rate, the after-tax FBT cost is roughly 46 percent of the deemed interest amount, while charging interest only costs the family the 28 percent company tax on the interest income. The exception is when the shareholder genuinely cannot fund the interest payment, in which case FBT may be the only option.

What is the current FBT prescribed interest rate in NZ?

The IRD prescribed interest rate for FBT on low-interest employment loans is 5.77 percent per annum from 1 January 2026, down from 6.29 percent in the previous quarter. The rate is reviewed quarterly by Inland Revenue and tracks market rates with a lag. Recent rates: 5.77% (from 1 January 2026), 6.29% (Q4 2025), 6.67% (Q3 2025), 7.38% (Q2 2025), 8.41% (October 2023 to March 2025).

Are salary advances exempt from FBT?

Yes. Salary advances of up to $2,000 are exempt from FBT. The exemption applies once per employee per year. Larger advances or recurring small advances may not qualify and should be treated as low-interest loans subject to the prescribed rate test.

Does interest charged to a shareholder need to be paid in cash?

The interest must be either paid in cash or credited to the shareholder's current account (compounding the debit). It cannot simply be journalled as a notional charge with no economic effect. Once credited, it becomes income to the company and must be included in the company's income tax return for the year. The shareholder's deduction (if any) for the interest depends on whether the borrowed funds were used for an income-producing purpose.