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What's Happening to LAQCs on 1 April 2011?

Posted 3/03/2011 Updated 27/07/2011

From the 1 April 2011 LAQC's (Loss Attributing Qualifying Companies) will cease to exist as we know them today. Inland Revenue are giving these companies the option of changing into another "style" of company or even move to a partnership or soletrader structure. The main two options most companies will move to are a QC (Qualifying Company) or the new LTC (Look Through Company). The final date for LAQCs to transition to an alternative tax structure is 30 September 2011.

In the past an LAQC company has meant that if it made trading losses these losses flowed through to the shareholders to be offset against their other personal income. However if the company made a profit a choice could be made to transfer the profit to the shareholders or leave the profit in the company to be taxed. The government considered this was an uneven tax position so have changed the legislation to prevent this occuring.

Moving to a QC company will mean that any losses the company makes will remain in the company to be offset by future year's profits. If the company makes a profit you can choose to allocate it to the shareholders or leave it in the company to be taxed. Losses cannot be passed onto the shareholders.

Moving to a LTC company will mean that all losses and all profits have to flow through to the shareholders based on their shareholding percentage in the company. No profits or losses can be retained in the company for tax purposes.

There is also the option of transitioning to a partnership (ordinary & limited) or soletrader structure and the appropriate tax implications will be based on those structures rules.

Every company has different circumstances and there is no "one size fits all" answer on which way to go. However as a general idea if your company is making profits transitioning to a QC could be the likely way to go - if your company is making losses maybe the LTC is the best option.

Kiwitax Team are working with clients to help them choose the right way forward. We have a service available to carry out a review where we take an in-depth look into each person's situation and future plans with a view to a desirable outcome. If you'd like us to help you with this please contact us.

Related Items: Income Tax | LAQC | LTC | Rental Property | Structures

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