Look Through Company NZ

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Minimise Tax & Increase Net Worth with a Look Through Company (LTC)

 Look Through Company

LTC Help for Potential and Current Property Investors

LTC Help For Potential and Current Property InvestorsWhen it comes to Look Through Company (LTC) there are a lot of Accountants who are confused by the LTC and inform their clients to avoid using them.  This is due to a lack of knowledge about the LTC and not investing in understanding what LTC really means.  At GRA we have invested a lot of time and money to understand Look Through Company.  This wasn't so we can impress other accountants but to make sure not only our clients but our future clients like you actually get the right advice about whether LTC would be suitable for your particular structure.  It's a bit like your doctor recommending the incorrect drug for the illness. You wouldn't put your health at risk so why put your wealth at risk.  

To help you start your investigation into LTC download our FREE ebook "LOOK THOUGH COMPANY (LTC) EXPLAINED".  Then read the information below and decide if you would like to request a meeting with us.  What ever you do, seek professional help with an accounting firm that understands Look Through Company (LTC), because its a costly business if you get it wrong.  At GRA we want to make sure you get it right, first time.


The Birth of LTC

The look-through company regime came into existence on 1 April 2011. The origins of the LTC regime can be traced back to the Government’s budget announcement of May 2010 where they announced an overhaul of the loss attributing qualifying company (LAQC) regime of the time. In particular, the Government was concerned with some of the aspects of the LAQC regime including:

  • Losses were able to be attributed to shareholders and claimed personally at personal tax rates, which could have been as high historically as 39%, but profits were able to be trapped in the company and taxed at the company tax rate which was either 33% or 30% at the time.
  • There was no cap on the amount of losses able to be claimed by a shareholder of an LAQC.
  • Shareholders of an LAQC were able to take advantage of tax losses that might be funded through debt, but then not suffer any corresponding remission income if the debt happened to be written off after the LAQC election was revoked.
  • There were also concerns around the complexity and the rigid nature of the LAQC election rules. 

Typical Salaried Property Investor Structure - Family Trust & LTC

LTC Help For Potential and Current Property Investors

For more information about this diagram, please request and interview

Key Elements of the LTC Regime

The key outcomes of a company having LTC status are as follows:
  • The company is transparent for tax purposes. This means that tax profits or losses that would ordinarily be returned by the company are in fact returned by the shareholders in proportion to their shareholding. From a technical perspective, the shareholder is regarded as having derived the income and incurred the expenditure of the LTC. 
  • There are very complex loss limitation rules in place that seek to limit the amount of tax loss a shareholder of an LTC can claim to the extent of their investment in the LTC. The rules' complexity derives from the complicated formula that one must apply in order to work out what a shareholder’s owner’s basis is. This is the description of the exposure that a shareholder has. Broadly speaking, the principle is to ensure that if the most a shareholder of an LTC can lose is $100, then the most they should be able to claim from a tax perspective is $100. 
  • The movement of shares in an LTC is regarded as the movement of the underlying property. This means that if the LTC owns revenue account property there may be a taxable gain on movement of the shares. Further, if the LTC owns depreciable property, there may be depreciation recovery. That said, there are exemptions and de minimis thresholds. 
  • As an LTC is a disregarded entity for tax purposes, some of the rules that ordinarily apply to companies do not apply to LTCs.  For example, shareholders cannot draw shareholder salaries that are exempt from PAYE. Furthermore, there are restrictive rules around when even a PAYE salary can be claimed for tax purposes in an LTC. 
  • Aside from tax, an LTC is just an ordinary company. This means that from all other legal perspectives you have a company with limited liability and subject to the ordinary company legal framework. 

Requirements of an LTC

In order for a company to obtain LTC status there are some base requirements.  They are as follows:
  • There have to be five or fewer shareholders. As with many elements of the LTC rules, this in itself is not straightforward as there are aggregation rules that allow certain related shareholders to count as one shareholder.
  • All shareholders of an LTC must be natural persons, trusts, or other LTCs. 
  • An LTC election needs to be filed within the appropriate time frame. This varies depending on whether the company is new or existing.
  • The company cannot be regarded as a foreign company. This means that the company not only has to be tax resident of New Zealand under domestic legislation but it also needs to retain that tax residency in New Zealand after the application of any relevant double tax agreement. 

LTC Summary

In summary, the LTC rules are relatively complex but offer a useful tax structure for a wide range of potential uses including holding loss-making property investments, carrying out joint venture business activities between two to five business partners, cross border investment where an ordinary company structure might give rise to two layers of taxation (i.e. once at company level and once at shareholder level) etc. 

It's our passion and expertise that has helped thousands of Kiwis, expats and migrant property investors to minimise tax and increase their net worth. That's why when the proposed 2010 tax changes to the LAQC regime were announced to the property investment community, including professional CA firm's like ours, we made it our mission and duty to understand the legislation and all its implications.

For more information and to organise a review of your affairs with respect to look-through companies and LTC changes, please contact us or DOWNLOAD YOUR FREE LTC REPORT 

Matthew Gilligan  CA CPP Director John Rowe Director Business Accounting Services Janet Xuccoa BCom LLB Director Professional Trustee Services
Matthew Gilligan
CA CPP Director
John Rowe
Director Business Accounting Services
Janet Xuccoa BCom LLB
Director Professional Trustee Services

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Look Through Company Blogs

Wednesday, February 26, 2014
  ... Read Article
Tuesday, September 04, 2012

If you have a company that used to be an LAQC before the rule change on 1 April 2011 and you have not previously taken any action in terms of transitioning the company into the new Look Through Company (LTC) regime, you still have one last chance to do so – but time is running out.   ... Read Article

Wednesday, May 23, 2012

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   ... Read Article

Tuesday, July 19, 2011

Many of our clients come to us because they are not getting advice or they are not satisfied with advice they are receiving from other accountants.  In recent times the tax changes introduced by the National Government regarding property investors have created quite a stir and presented some challenges to investors in regard to making a decision as to whether to (a) convert their LAQC (Loss Attributing Qualifying Company) to a Look Through Company (LTC); (b) remain a QC (ie LAQC without ability to attribute losses); (c) revert to "ordinary" company status; or (d) migrate out of the company into individual ownership of the assets.  ... Read Article

Tuesday, May 10, 2011

The 2012 tax year began on 1 April 2011 for most taxpayers and with it new tax rules in relation depreciation on buildings and LAQCs finally came into force.  We have written a number of times on the potential impact these rules may have on you if you have an existing LAQC and have long been encouraging our clients to make contact with us in order to have their circumstances reviewed so that appropriate action can be taken.  ... Read Article

Friday, January 28, 2011

LAQC / LTC TAX CHANGES  ... Read Article

Wednesday, October 20, 2010

Since announcing in May that the LAQC regime was going to be the subject of an overhaul the property investment community has been anxiously awaiting the Government’s follow-up to the Issues Paper released at the time.  On Friday 15 October 2010 draft legislation was released.  As at the time of writing all practitioners, including myself, were poring over the draft to get to grips with the new regime.  The objective of this article is to provide an overview of the proposed rules.  Contact Us At GRA  ... Read Article