WHAT IS A LOOK-THROUGH COMPANY? (LTC)

What is a Look-Through Company? This structure — an LTC — is a unique business structure in New Zealand. It combines the legal benefits of a limited liability company with the tax advantages of a partnership. Introduced in 2011 as a replacement for the Loss Attributing Qualifying Company (LAQC) regime, LTCs allow income and expenses to flow directly to shareholders. Shareholders then report these figures on their personal tax returns.

Key Features of a Look-Through Company (LTC)

• Flow-Through Tax Treatment. Unlike traditional companies, which are taxed at the corporate level, an LTC’s profits and losses pass directly to its shareholders. Shareholders are taxed individually on their share of the company’s income, at their own personal tax rates.
• Limited Liability Protection. Shareholders are protected from personal liability for the company’s debts and obligations. This works the same way as with a standard limited liability company.
• Shareholder Restrictions. An LTC can have up to five shareholders. All shares must confer identical rights, ensuring equal treatment among shareholders.

Advantages of Using an LTC

• Tax Efficiency. For businesses or investments that may incur initial losses — start-ups, or negatively geared rental properties — shareholders can generally offset these losses against other personal income, potentially reducing their overall tax liability, subject to the loss limitation rules below.
• Simplicity in Tax Reporting. Income and expenses are declared directly on shareholders’ personal tax returns. That eliminates the need for separate corporate tax filings.

For more on some real use-case scenarios, see Why Use a Look-Through Company?

Considerations and Limitations

• Loss Limitation Rules. Shareholders can only claim losses up to the amount of their economic investment in the company, preventing excessive losses being used to offset other income.
• Bright-Line Test Implications. Changes in shareholding, or electing LTC status, can trigger implications under New Zealand’s bright-line test for property sales. Worth checking the specific rules in effect at the time, since these have changed more than once.
• Residential Rental Losses Are Ring-Fenced. Since the 2019–20 income year, residential rental property losses have been ring-fenced. They can only offset other rental income, not salary or other personal income. This isn’t specific to LTCs — it applies regardless of ownership structure, whether personal, trust, company, or LTC. Where an LTC can still offer a genuine advantage: a shareholder’s share of a loss can offset other rental income they hold outside the LTC. See offsetting LTC profits and losses against other rentals for how this actually works in practice.

Establishing an LTC

To set up an LTC, a company must:

• Be a New Zealand resident company.
• Ensure all shareholders are either individuals, trustees, or other LTCs.
• Obtain unanimous agreement from all shareholders to elect LTC status.
• File the appropriate election forms(opens in new tab) with Inland Revenue within the specified time frames.

See how to set up an LTC for the full process.

Conclusion

So, what is a Look-Through Company? An LTC offers a flexible and tax-efficient structure for certain business activities and investments in New Zealand. It’s essential to check current legislative settings and your specific circumstances before opting for an LTC. The rules around bright-line, ring-fencing, and loss offsetting all interact with each other. Consulting with a tax professional or accountant can help. They can determine if an LTC is the most suitable structure for your needs.

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