Co-operative Business New Zealand (CBNZ) has warned of a threat to the sector in its response to national Inland Revenue Department (IRD) consultation on reforms to rules on company loans to shareholders.
In effect, the IRD is looking to stop owners of private companies using shareholder loans as a way to withdraw profits without paying tax. Although its proposals specifically target private companies, there are no provisions for co-operative or mutual businesses, which typically utilise spread or deferred payment arrangements for members.
CBNZ warns that changes designed for investor-owned companies risk capturing legitimate activity of co-operatives and mutuals – unless provisions to recognise member-owned business models are made.
It gave the example that repayment terms can often extend beyond 12 months in sectors reliant on seasonal cashflow, arguing that these balances should not be deemed as dividends or income.
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“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,” said CBNZ in a statement. “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.”
CBNZ goes on to argue that a one-size-fits-all tax framework could lead to 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.
Companies Act co-operatives – whose co-op status is defined through constitutional arrangements rather than dedicated legislation – were identified as particularly exposed.
The apex argues they are “indistinguishable from investor-owned companies at a formal legal level” as their co-op character is embedded in constitutional and contractual arrangements rather than statute, and they often have large and complex member bases rather than a small group of controlling shareholders.
“Cooperative Business NZ supports Inland Revenue’s efforts to address genuine tax integrity concerns in relation to shareholder loans,” said CEO Saya Wahrlich (pictured) in the submission. “However, without explicit recognition of member-owned ownership models, the proposals risk unintended consequences for cooperatives and mutuals that are not the source of the policy concern.
“We encourage Inland Revenue to refine the proposals to ensure they remain targeted, proportionate and consistent with parliament’s longstanding recognition of co-operative and mutual enterprise in New Zealand.”
