LAQC’s to LTC’s, QC’s partnerships – what is best?

NZ Accounting: LAQC’s to LTC’s, QC’s partnerships – what is best for you?

With the recent changes to Inland Revenue policy, if you have an LAQC, you have just under six months to decide what new structure you will use now that LAQC’s are gone, and avoid tax costs like depreciation recovered. So: what is best for you?

First and foremost, an LTC means profits flow through to shareholders and are charged at your nominal tax rate – but losses are limited to the investment you have personally made in the company – or any loans you have guaranteed (like a mortgage).

This means if you are a shareholder in an LAQC that owns a property, but you are not the guarantor for the mortgage on that property, the losses that currently flow through to you will no longer flow through. But guess what: if you make a profit you’ll have to pay tax in proportion to your shareholding.

This could be an easy fix – selling the property to a new LTC company, and becoming a guarantor on the loan alongside your business partner will mean you can benefit from any flow through losses.

Although be aware of depreciation recovered – this could end up being a tax bill (remembering you’ll pay tax in proportion to your shareholding).

Another option is to move your LAQC to a limited partnership; if done inside the six month window, there will be no depreciation recovered, and you can restructure the debt to ensure you are an equal guarantor of the loan attached to the property.

NZ Accounting advise on and form companies for free (conditions apply). If you want advice specific to your needs, call us to make an appointment (offices nationwide).

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