Look-through Companies (LTCs)
Grange Associates Ltd - 21 February 2012
Look-through companies (LTCs) are a new tax entity established by legislation
passed in December 2010. The LTC rules came into effect from 1 April 2011.
The main differences between the LTC and the old LAQC (loss attributing qualifying company) is that
shareholders of an LTC are liable for tax upon an LTCs profit and the ability to offset any loss is limited to
the sharehholder's investments (owner's basis).
Key Features
- The LTC is an incorporated company, with corporate obligations and benefits under
company law
- For income-tax purposes, the LTC is "looked-through" so the shareholders of the company are regarded as
owning any company assets directly and carrying on the activities of the LTC personally
- The LTC's taxable income or losses are passed onto the shareholders according to their effective interest
in the company
- The amount of the deduction an owner can claim for their share of LTC losses is limited to their "owner's
basis", which is the adjusted tax value of their investment in the LTC.
- The LTC is still recognised separately from it's shareholders for other tax purposes, such as GST, FBT and
PAYE
- An LTC must not have more than five look-through counted owners. Related owners within two degrees of
relationship will be counted as one owner. So, if a husband, wife, their son and grandson are all
shareholders, they would only be considered one look-through counted owner, due to their relationship.
Transitional Rules for LAQCs & QCs
Companies that were already QCs or LAQCs immediately prior
to the 1 April 2011 income year can elect to transition directly into the LTC regime under special transitional
rules.
For those QCs who did not move into the LTC regime for the 1 April 2011 income year, they can still elect to
do so for the income year starting 1 April 2012 under these transitional rules.
Futher Information
For more information, the IRD have produced a Look-through Companies guide which explains the LTC rules in more
detail.
All information is correct at the date of article
publication. Please note we provide the information as a service only. Accordingly, the contents are
not intended as a substitute for specific professional advice and should not be relied upon for that
purpose. |
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