LAQC - Second Window of Opportunity
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Articles by Matthew Gilligan
If you have a company that was previously a Loss Attributing Qualifying Company (LAQC) and you did not elect to convert the company into the new Look Through Company (LTC) regime or disband the company into a sole trader or partnership, you now have a second window of opportunity to consider whether you want to make any of these transitions.
In other words, if you did nothing with your LAQC following the commencement of the new regime on 1 April 2011 and you are not sure whether that is the right action, then you should be contacting GRA now as you have a second bite of the cherry.
The Options
As a reminder, if you have a Qualifying Company (bearing in mind that the company will no longer have the ability to attribute tax losses to shareholders so is known as a QC rather than an LAQC), you have the following four options:
- Do nothing and leave the company as a QC.
- Elect for the company to be an LTC with effect from 1 April 2012. Note that this election has to be filed before 30 September 2012.
- Revoke QC status and have the company revert to being an ordinary company for tax purposes. This can be accomplished by filing a QC revocation form with the IRD at any point during the 2013 financial year (i.e. the current financial year).
- Transition to a sole trader or partnership structure, which involves transferring the business assets and liabilities out of the QC into the shareholder's hands as a sole trader or partnership. This can happen at no tax cost, although there will be legal costs involved if we are talking about property. Once again, an election to pursue this course of action needs to be filed before 30 September 2012 with the physical transfer needing to take place before the end of the current financial year.
Some Considerations
If you have a QC that is producing tax losses, it may well be that you are best off making the transition into the LTC regime to allow release of those tax losses. Although you will have missed one year of loss attribution by not making the election during the first window of opportunity, you will at least release the tax losses from the 2013 financial year onwards. Tax losses from the 2012 year where the company was a QC are not forfeited but can only be offset against future taxable profit of the LTC.
Summary
In summary, if you had an LAQC leading into the rule change on 1 April 2011 and you have not taken any action in respect of this company, then you have a second window of opportunity to reconsider the tax position of the company. This window closes on 30 September 2012 so now is the time to take action. Please contact us at GRA if you wish to discuss your QC with us.
Matthew Gilligan
Managing Director and Property Services Partner
© Gilligan Rowe & Associates LP
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Disclaimer: This article is intended to provide only a summary of the issues associated with the topics covered. It does not purport to be comprehensive nor to provide specific advice. No person should act in reliance on any statement contained within this article without first obtaining specific professional advice. If you require any further information or advice on any matter covered within this article, please contact the author.
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