There are major changes occurring in 2011 once legislation has been passed, affecting Loss Attributing Qualifying Companies (LAQCs) and Qualifying Companies (QCs) under NZ tax legislation.
From 1 April 2011, the ability to attribute losses through an LAQC will no longer be available.
QCs and LAQCs will continue to exist until the 2012/2013 income year with changes to the legislation including the removal of the ability to allocate losses.
A new type of company called a Look Through Company (LTC) will be available for election by resident NZ companies that meet the criteria to be treated for tax purposes as an LTC. The election will need to be made by existing QCs within six months from the beginning of the income year starting on or after 1 April 2011, for many QCs/LAQCs, this will be 30 September 2011.
Existing LAQCs and QCs will be able to elect to be treated as an LTC with no tax consequences.
In accountants’ terms, the balance sheet of a QC/LAQC will become the opening balance sheet of an LTC.
However – the loss of LTC status, once elected, can potentially have serious tax consequences for the company, which will revert to a ‘normal’ company (under exceptional circumstances the reinstatement of LTC status can be applied to IRD for within a short timeframe).
The LTC regime is more complex perhaps than the existing LAQC regime and requires the income and losses of an LTC to be passed through to the shareholders.
The rules for the new regime should be thoroughly understood before electing this type of entity for NZ tax purposes, and the election should be made preferably by 1 April 2011.
More information is to come.