LTCS VS QCS AND LAQCS

What is an LTC?

Unlike the LAQC rules, shareholders of an LTC are liable for tax upon the company’s profit, as well as being able to offset the company’s losses against their other income. The key features of an LTC are:

The LTC retains its identity as an incorporated company, and will keep its corporate obligations and benefits under general company law, such as limited liability.

For income tax purposes, the LTC is “looked-through” and the owners of an LTC are regarded as holding the LTC’s assets directly and carrying on the activities of the LTC personally.

An LTC’s income, expenses, tax credits, gains and losses are passed onto its owners, in accordance to their effective interest in the company.

Each owner of the LTC will then record any income or losses, as appropriate, in their own income tax return.

For other tax purposes (such as GST, PAYE or FBT) the LTC retains its tax obligations.*

What about QCs?

·         There are no new QC or LAQC elections.

·         Existing LAQCs cannot attribute losses or income years starting on or after 1 April 2011 – only LTCs can.

·         Existing LAQCs automatically became QCs (without the ability to attribute losses) at the start of the income year that begins on or after 1 April 2011. 

Technical Info

Tax Information Bulletin Vol 23, No 1 (February 2011) explains the LTC rules and the other changes to the QC and LAQC rules in further detail