BUYING PROPERTY THROUGH AN LTC: DOCUMENTS YOU NEED

By Garreth Collard, Senior Property Accountant | January 20, 2023

Buying property through an LTC: documents you need for your bank, lawyer, IRD, accountant, broker… Yes! It takes more paperwork than buying in your own name. The right documents protect your tax position and satisfy the Companies Act. They also give your bank and lawyer what they need. The wrong ones, or none at all, can leave you empty-handed when IRD asks questions years later. This guide lists each document, explains why it matters, and shows when to sign it. Ready to learn more about your look-through company property purchase? Click “more”

30-Second Read

An LTC (look-through company) is an ordinary company that has elected look-through tax status with IRD.
Buying a property is usually a “major transaction” under the Companies Act. Shareholders must approve it by special resolution.
IRD says your purpose when you acquire land matters. It names minutes and director resolutions as evidence, so record that you buy to rent.
The land rules usually treat you as acquiring the property when you sign a binding contract. Sign your resolutions before that date.
File the LTC election IR862 on time. A new company has until its first return is due. An existing company must file before the income year starts.
Keep your documents for at least seven years. Keep the purpose evidence even longer.

Why Do the Documents Matter When Buying a Property Through an LTC?

An LTC is an ordinary New Zealand company that has elected look-through tax treatment. Our guide to what a look-through company is covers the basics. Here is the key point. Look-through treatment applies for income tax only. IRD’s LTC guide (IR879) confirms that an LTC keeps its corporate obligations under company law.

Two sets of rules therefore apply at the same time. Company law wants proper approvals and records. Tax law wants a valid election and evidence of why you bought. A gap in either set causes trouble later. A bank may hesitate to lend. IRD may question a sale. A co-owner may dispute a decision.

Good paperwork costs little at the start. Rebuilding it years later costs far more. The sections below show what to prepare and in what order.

The Four Company Documents Your Lawyer Should Prepare

Your lawyer normally drafts these documents. We check that they match your tax position. We suggest that you sign all four before you commit to the purchase.

1. Minutes of the Directors’ Meeting

The directors decide that the company will buy the property. The minutes record that decision. They should name the property and the price. They should also say how you fund the purchase and why the company buys it.

Small LTCs rarely hold a formal boardroom meeting. Directors usually record the decision in writing instead. A dated, signed record normally does the job. IRD lists minutes of board meetings and resolutions of directors as evidence of your purpose when you acquire land.

2. Major Transaction Resolution of Shareholders

Section 129 of the Companies Act 1993 bars a company from entering a major transaction without shareholder approval. The shareholders must approve it by special resolution. Alternatively, the contract can be conditional on that approval. The Supreme Court confirmed the rule in Baker v Hodder.

What counts as a major transaction? Buying assets worth more than half the value of the company’s assets before the purchase qualifies, as law firm DLA Piper explains. A new LTC holds very little before it buys. A rental property is worth far more than half of that. So almost every first purchase through a new LTC is a major transaction, hence why a major transaction resolution NZ is recommended.

A special resolution needs a 75% majority of the votes. Gibson Sheat notes that a company’s constitution can set a higher bar. With two equal shareholders, both must sign. Shareholders can sign a written resolution instead of holding a meeting.

Skipping this step carries real risk. Gibson Sheat warns that directors may face personal liability. The purchase is not automatically invalid. Even so, you do not want to rely on shareholders approving it later.

3. Resolution Ratifying the Directors’ Resolution

This document links the directors’ decision to the shareholders’ approval. The shareholders confirm that they back what the directors resolved. The paper trail then shows that owners and directors agreed before the company committed to buy.

4. Shareholders’ Special Resolution: To Purchase and Purpose

This resolution records why the company buys the property. For a rental, it states that the purpose is long-term residential rental investment.

The purpose matters because of section CB 6 of the Income Tax Act. IRD’s guidance on land acquired for a purpose of disposal explains the rule. If you acquire land with a purpose that includes selling it, the profit on sale is income. Selling does not need to be your main purpose. It must be more than a vague idea. IRD tests your stated purpose against all the evidence. For a company, the purposes of the directors count. If IRD questions you, you must show that you did not buy to sell.

Your emails and letters count too. Tell your lawyer, bank, mortgage adviser and accountant the same thing: you buy for long-term rental. Inconsistent messages weaken the resolution. If you plan to renovate and sell (a flip), tell your accountant now. There is guidance from IRD re deductibility of repairs to newly acquired assets. And different rules apply when you buy with the intention of flipping.

One more point catches people. Only your purpose at the time of acquisition counts. IRD says that if you intend to sell, then change your mind and rent the property out, you still pay tax on the eventual sale.

When Should You Sign? Before You Sign the Agreement

Timing matters as much as content.

In a typical purchase, IRD treats you as acquiring the land when you enter a binding contract. A conditional contract still counts. So your resolutions should carry a date before you sign the sale and purchase agreement.
IRD looks at what you said and did around the time you acquired the land. A resolution signed after the contract still helps. It simply carries less weight than one signed before.
Can’t sign in time? Ask your lawyer to make the agreement conditional on shareholder approval. Section 129 allows this.
Watch out if you sign the contract before the company exists. IRD notes that when a company obtains land under an agreement made before its formation, the acquisition date can differ. Speak to your lawyer before you sign in your own name.

Bright-Line Comes Second

The bright-line test is a separate rule. For residential land sold on or after 1 July 2024, the bright-line period is two years. The bright-line start date is typically when the transfer registers in your name. IRD’s bright-line page has more detail.

IRD also says bright-line applies only if none of the other land sale rules (sections CB 6 to CB 12 of the Income Tax Act) apply. So purpose comes first. Bright-line comes second. Our bright-line test guide goes further into this matter.

The LTC Election: Form IR862

The resolutions deal with company law and purpose. The LTC election IR862 deals with tax. It is the form that turns an ordinary company into an LTC. Use IRD’s current IR862 form rather than an old copy.

Who Signs the IR862

Everyone who owns a look-through interest at the election date must sign. That includes a trustee, a director, or an agent with authority to sign. If an owner is under 18 or cannot legally sign, a guardian, power of attorney or legal representative signs instead. The director, or an authorised agent, also completes the director’s election.

The form must name the income year. Make sure to get the right year! IR879 says an election without a year is invalid. A missing signature has the same effect.

When to File

New company: file on or before the due date for the company’s first income tax return. IRD may extend that date to 31 March of the following year for companies linked to a registered tax agent.
Existing company that has traded: IRD must receive the election before the start of the income year it applies to. A late election is invalid, except in exceptional circumstances. Our guide on how to make a company into an LTC walks through the steps.
Shelf (non-active) company: also file an IR434 reactivation form when the company starts trading.

File the IR862 as soon as the company exists. Waiting gains you nothing. It also risks missing the deadline.

Check Eligibility First

Before you elect, confirm that the company qualifies. It must be a New Zealand tax resident. It needs five or fewer look-through counted owners, and related owners count as one. Only individuals, trustees or other LTCs can hold the shares.

If your company was an LTC before and stopped, IRD blocks re-election for the year it stopped and the following two years. Our guide on setting up an LTC covers the full journey.

An Existing Company Faces Extra Tax

When an existing company becomes an LTC, two things happen. First, any tax loss balance from earlier years disappears. Second, each owner is treated as receiving income on the first day of the first LTC year. IRD calculates that income from the company’s untaxed reserves, as if the company were wound up. Get advice before you elect.

Keep IRD’s Confirmation Letter

IRD sends the company a letter confirming that it is an LTC and from which date. File that letter with your other documents. Your lender or lawyer may ask for it.

Worked Example 1: Anika and Rhys Form a New Company

Anika and Rhys find a $780,000 rental property. They plan to hold it long term. They incorporate Waikato Rentals Limited on 3 November, with 50 shares each. The company holds $100 in its bank account.

They plan to sign the sale and purchase agreement on 20 November. The agreement is conditional on finance. Settlement is on 15 January.

Before 20 November, they complete the paperwork:

Anika and Rhys, as directors, sign minutes that record the decision to buy.

As shareholders, they sign the major transaction resolution. The company holds $100 before the purchase, so the property is far more than half of its assets. Each holds only 50%, so both must sign to reach 75%.

They sign the ratifying resolution and the purpose resolution. The purpose resolution says they buy for long-term residential rental.

They email their lawyer and mortgage broker with the same purpose.

They sign the IR862 and name the company’s first income year. The company is new, so the deadline is the due date of its first return. They file straight away anyway.

On 20 November, the agreement becomes binding. IRD treats that date as the acquisition date for the purpose test. On 15 January, the transfer registers. That date is typically the bright-line start date. Anika and Rhys file IRD’s confirmation letter with the resolutions.

Worked Example 2: Pita and Leilani Convert an Existing Company

Pita and Leilani own Harbour Cafe Limited. The company has traded for six years and holds $400,000 of assets. They want it to buy an $850,000 rental and become an LTC from 1 April 2027.

The company already trades, so IRD must receive the IR862 before 1 April 2027. A form that arrives after that date is invalid. Pita and Leilani mark 31 March 2027 as the final day. They aim to file well before it.

The purchase is a major transaction. The $850,000 price is more than half of the company’s $400,000 assets. So both shareholders sign a special resolution. They also sign the purpose resolution before they sign the sale and purchase agreement.

They ask us to run the first-year numbers before they elect. The company holds retained profits. IRD treats each owner as receiving income from those reserves on 1 April 2027. An unused tax loss from an earlier year also disappears. Seeing the figures first lets them decide whether to go ahead. They also ask whether a separate company for the rental suits them better.

For more info about the tax cost on conversion of an existing company to a LTC, see our blog post here.

Common Mistakes to Avoid

Signing the sale and purchase agreement before the resolutions.
Writing a purpose that contradicts your emails to the bank.
Leaving an owner’s signature off the IR862.
Naming the wrong income year on the election.
Using an outdated election form.
Losing the signed paperwork.

How Long Should You Keep the Documents?

IRD’s normal tax record period is seven years. Purpose evidence is different. IRD says that if section CB 6 of the Income Tax Act applies, it does not matter when you sell. It advises keeping evidence of your purpose even beyond the normal seven-year period.

Store signed copies somewhere safe and backed up. Our guide on records you need to keep for a rental lists what else to hold.

Common Questions

Does every purchase need a special resolution? Not always. It depends on whether the purchase is worth more than half of the company’s assets before it buys. A new LTC with little in the bank almost always crosses that line. An established company with large assets might not. Check the numbers with your lawyer.

Who signs the IR862? Everyone with a look-through interest at the election date signs. The director, or an authorised agent, also completes the director’s election.

Can I sign the resolutions after the contract? You can, but it is weaker evidence. IRD looks at your purpose when you acquired the land. A resolution that predates the contract shows that purpose most clearly.

Can I keep using an old IR862? No. Always download IRD’s current form before you file.

What if I want to renovate and sell? Tell us before you buy. Different land rules apply, and an LTC resolution that says “long-term rental” would not match your plan.

Checklist: Buying a Property Through an LTC

✅ Company incorporated, with a share register and IRD number
✅ Bank account open in the company’s name
✅ Directors’ minutes signed and dated
✅ Major transaction resolution signed by enough shareholders
✅ Ratifying resolution signed
✅ Purpose resolution signed before the agreement
✅ Emails to lawyer, bank and adviser state the same purpose
✅ IR862 signed by every owner and the director, with the correct income year
✅ IRD confirmation letter filed
✅ Shareholder loan agreements in place
✅ All signed copies stored safely for the long term

Downloads

Use these as starting points. Ask your lawyer to adapt them to your situation.

Summary

Buying property through an LTC: documents you need? Essentially, it is two layers of documents. Company law needs directors’ minutes, a major transaction resolution and a ratifying resolution. Tax law needs a valid IR862 election and a clear record of why you bought. A purpose resolution links the two.

Timing ties it together. Sign the resolutions before you sign the sale and purchase agreement. File the election by the right deadline for a new or existing company. Then keep every signed document for the long term.

Talk to EpsomTax.com Before You Sign

One missing signature or one wrong date can cost you years later. Contact EpsomTax.com before you sign a sale and purchase agreement. We check your resolutions, file your IR862 and make sure your records stand up to IRD. Call us on 09-973-0706, ext 2.

This article is general information, not personal tax or legal advice. Ask your accountant and lawyer about your own situation. Note that whether you want to buy a rental property through an LTC or use an LTC for another purpose, the same general principles of documentation apply. However, this article is (as the title indicates) specifically written for property investors.

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