Tax shareholder loans

What is the problem that this change would seek to address? 

There is a practice of companies giving long-term loans to shareholders or associates which are not taxed in the way a dividend to a shareholder would be taxed. This practice also deprives us of much needed tax revenue.

Shareholder loans may also be a factor in the failure of companies, where there is inadequate reinvestment of funds into the business.

How would taxing shareholder loans work?

In the UK, if a “close company” loans money to a shareholder or other associate, it must  “loan” money to the government as a tax on the amount of the loan, this tax is charged at the UK’s upper dividend rate for shareholders (33.75%). The tax is repaid to the company when/if the loan is repaid by the shareholder.

There can be a threshold where shareholder loans are only taxed when all loans from the company exceed a certain amount (e.g. $10,000).

Why would this be better?

Taxing shareholder loans, like we tax dividends would be fairer and potentially generate more revenue.

By repaying the tax when/if a loan is repaid, this would incentivise the repayment of loans