GAL 
   
 
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.

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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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