LTCS VS QCS AND LAQCS

LTCs vs QCs and LAQCs is a question that comes up occasionally, usually from someone who’s stumbled across an old company structure and isn’t sure what it actually is anymore. This describes a structural change from 2011. If you’re weighing up how to structure a rental property today, an LTC is virtually always the option. QCs and LAQCs aren’t part of that choice anymore. See our guide on what a Look-Through Company actually is if that’s what brought you here. This page exists mainly for anyone dealing with an older structure that predates the 2011 changes.

What Is an LTC?

Unlike the old LAQC(opens in new tab) rules, shareholders of an LTC are liable for tax on the company’s profit. They can also offset the company’s losses against their other income. The key features:

• The LTC keeps its identity as an incorporated company, with all the usual corporate obligations and benefits under general company law, including limited liability.
• For income tax purposes, the LTC is “looked through.” Owners are treated as holding the LTC’s assets directly. They carry on its activities personally.
• The LTC’s income, expenses, tax credits, gains and losses pass through to its owners. This happens according to their effective interest in the company.
• Each owner records their share of income or losses on their own personal tax return.
• For other tax purposes — GST, PAYE, and FBT — the LTC retains its own obligations. Income tax attribution doesn’t extend to these. The LTC registers for GST, deducts PAYE from any employees, or accounts for FBT as the taxpayer in its own right. None of this passes through to the owners.

What Happened to QCs and LAQCs?

• No new QC or LAQC elections have been available since 2011.
• Existing LAQCs lost the ability to attribute losses or income for any year starting on or after 1 April 2011. Only LTCs can do that now.
• Existing LAQCs automatically became ordinary QCs, without loss attribution. This took effect from the start of their first income year beginning on or after 1 April 2011.

If You Think You Still Have an Old QC or LAQC

If you’ve inherited a company, or are reviewing an older structure, and you’re not sure whether it converted properly back in 2011, it’s worth checking rather than assuming. A structure that never got tidied up at the time can still carry consequences today. This applies particularly to how income and losses get treated on your personal return. Contact us and we can help confirm exactly what you’re dealing with. We can also advise whether converting to an LTC now makes sense for your situation.

Further Reading

• What Is a Look-Through Company (LTC)?
• How Do You Set Up an LTC?
• Trust vs Partnership vs Company vs LTC for Rental Property

Technical Info

Tax Information Bulletin Vol 23, No 1 (February 2011)(opens in new tab) explains the LTC rules and the accompanying changes to the QC and LAQC rules in full detail.