HOW DO YOU SET UP AN LTC?

How do you set up an LTC? If you’re investing in property or running a business in New Zealand, you’ve probably heard about Look-Through Companies (LTCs). And you should inform yourself about them and how to set them up.

The good news is that while the process is quite straightforward, there are a number of important decisions and compliance steps that need to be done properly from the outset.

In this guide, we’ll walk you through the process, what decisions you need to make, and the practical considerations that will save you time, money, and stress down the track. (To find out how to close a company, see this article).

Key Points (30 Second Read)

Setting up a Look-Through Company (LTC) can provide the limited liability protection of a company while allowing income, expenses, gains, and losses to flow through to the shareholders’ personal tax returns. This makes LTCs a popular structure for many New Zealand property investors and small business owners. To qualify as an LTC, the company must be a New Zealand resident company, have eligible shareholders, meet the LTC ownership rules, and all shareholders must agree to elect LTC status with Inland Revenue.

Before setting up an LTC, investors should consider how profits, losses, asset protection, financing arrangements, and future ownership changes may affect the overall benefits of the structure. Recent tax changes, including residential rental loss ring-fencing, have reduced some of the advantages LTCs once offered.

Bottom line: An LTC can be an excellent structure in the right circumstances, but there is no one-size-fits-all solution. It’s important to compare an LTC against personal ownership, trusts, partnerships, and standard companies before making a decision — see best rental property ownership structure and trust vs partnership vs company vs LTC for that comparison in full.

What Is an LTC and Why Would You Use One?

Before diving into the process, it’s important to understand what an LTC actually is. A Look-Through Company is a New Zealand company that allows its income, expenses, gains, and losses to “flow through” to its shareholders for tax purposes.

Key features of an LTC

• It is a company under the Companies Act 1993
• It has limited liability protection
• It is taxed like a partnership (income passes through to shareholders)
• It requires an election with Inland Revenue

This combination gives you “the best of both worlds”:

• Legal protection of a company
• Tax transparency of a partnership

Step-by-Step Overview

At a high level, the steps are simple:

1. Form a company
2. Elect LTC status with Inland Revenue
3. Meet ongoing compliance obligations

While that sounds straightforward, the real work lies in making the right decisions during setup.

Step 1: Form a Company (The Foundation Step)

The first step is forming a standard New Zealand company.

What’s involved in company formation?

You will need to:

• Register with the NZ Companies Office
• Choose a company name
• Appoint directors
• Allocate shares to shareholders
• Decide on a registered office address

A key point:

You don’t start with an LTC — you start with a regular company, and then elect LTC status afterward.

Key Decisions When Forming the Company

When setting up the company, you need to make several important choices.

Who will be the directors?

Directors are responsible for running the company. In many cases:

• You may be the sole director
• Or you may include your spouse or business partner

Who will be the shareholders?

Shareholders own the company. This decision is critical because:

• Income will flow to shareholders
• Tax outcomes depend on shareholding percentages

How many shares should be issued?

It’s common to issue at least 100 shares, even for a small company. This gives you far more flexibility when allocating ownership percentages later — dividing 100 shares into precise percentages is much easier than trying to split 2 or 10.

Step 2: Elect LTC Status with Inland Revenue

Once the company is formed, the next step is making the LTC election with Inland Revenue — a formal request to be treated as a Look-Through Company for tax purposes. This involves completing IRD’s election form, getting it signed by everyone with a look-through interest in the company, and getting the income year field right, since that’s the single most common mistake made at this stage.

We’ve covered this step in full detail — the specific form, exactly who needs to sign, and two restrictions worth knowing about — in how do you make a company into a Look-Through Company.

Step 3: Register for Tax and GST (If Required)

Next is Inland Revenue registration.

IRD registration

Your company will need:

• Its own IRD number
• Registration for income tax

GST registration

You only need to register for GST if:

• Your turnover exceeds $60,000 per year
• Or you expect it to exceed that level

Special Note for Property Investors

If your LTC owns nothing but residential rental property, GST registration is generally not recommended — see GST and rental properties for why.

This is an important point that is often misunderstood.

Step 4: Decide Whether Your LTC Will Be an Employer

Another key step is determining whether the company will employ staff.

Questions to consider

• Will the company pay a shareholder salary?
• Will it hire employees?
• Will PAYE obligations apply?

If yes, you will need to:

• Register as an employer with Inland Revenue
• Manage PAYE, KiwiSaver, and ACC obligations

Step 5: Establish Company Records and Compliance Systems

Setting up an LTC properly means putting systems in place from day one.

Required records include:

• Shareholder register
• Director details
• Annual returns
• Financial records

Companies Office obligations

You must:

• Maintain up-to-date records
• File an annual return with the Companies Office
• This is different from the tax return

IRD compliance requirements

Your LTC will also need to:

• File an income tax return
• Allocate income and losses to shareholders
• Keep accurate financial records

Failure to do so can result in penalties or loss of LTC status.

Key Decisions When Setting Up an LTC

Now that we’ve covered the setup process, it’s worth focusing on the strategic decisions.

Shareholding Structure (Critically Important)

Because income flows through:

• Shareholding percentages affect tax outcomes directly
• Ownership structure should align with income planning
• If you’re considering changing the shareholding after setup, see changing shares in LTCs for the tax and bright-line implications first

Director Responsibilities

Being a director comes with legal responsibilities:

• Acting in the best interests of the company
• Maintaining proper records
• Ensuring solvency

These obligations should not be overlooked.

Business vs Investment Use

LTCs are commonly used for:

• Rental properties
• Small businesses

Your use case may influence:

• structure
• compliance approach
• tax planning strategy

Advantages of Setting Up an LTC

Understanding the advantages helps reinforce why the process is worth it.

Limited Liability Protection

• Personal assets are protected (generally)
• Risk is contained within the company

Flow-Through Tax Treatment

• Income is taxed at shareholder tax rates
• Losses can flow through to individuals

Simplicity Compared to Other Structures

Compared to trusts:

• LTCs are often easier to manage
• More transparent tax outcomes

Disadvantages and Considerations

While LTCs can be powerful, they’re not always the best option.

Compliance Is Still Required

Even though tax is simpler than a standard company:

• You still have company obligations
• You must maintain proper records

Restrictions Apply

LTCs have specific eligibility rules, including:

• Limits on the number and type of shareholders
• Rules around ownership structures

Not Always Suitable for High-Growth Businesses

If you plan to:

• Bring in outside investors
• Scale significantly

A standard company may be more flexible.

Common Mistakes When Setting Up an LTC

It’s equally important to know what not to do.

Incorrect Ownership Structure

Getting shareholding wrong can:

• Create tax inefficiencies
• Be difficult to unwind later

Missing the LTC Election Deadline

This is one of the most common errors:

• Missed deadlines can delay benefits
• May require restructuring
• Putting the wrong financial year on the election form

Poor Record Keeping

Failure to maintain records can:

• Lead to penalties
• Risk losing LTC status

How Long Does It Take to Set Up an LTC?

Company formation itself is typically quick — often same-day through the Companies Office. The LTC election then depends on IRD’s processing timeframes, and the overall timeline depends on how quickly the underlying decisions (shareholding, directors, and so on) get made. If organised properly, from incorporation to a confirmed LTC election, the whole process can typically be completed within a few weeks.

Can You Change to an LTC Later?

Yes — and this is quite common.

If you’ve already:

• Started as a sole trader
• Or operate through a standard company

You can often transition into an LTC structure.

However, this can involve:

• Tax implications
• Legal restructuring

So it’s best to get advice before making changes.

Final Checklist

Here’s a simple checklist to summarise the process:

Setup Checklist

• ✅ Register a company
• ✅ Appoint directors
• ✅ Allocate shareholders and shares
• ✅ Apply for IRD number
• ✅ Complete LTC election
• ✅ Register for GST (if required)
• ✅ Decide on employer status (if applicable)
• ✅ Set up record-keeping systems
• ✅ File annual returns

Getting Help with Your LTC Setup

Although the steps in how to set up an LTC are relatively simple on paper, the decisions behind them can have long-term consequences — particularly around shareholding structure, which is genuinely difficult to unwind cleanly once set.

Working with an accountant can help you:

• Structure ownership correctly
• Avoid costly mistakes
• Ensure compliance from day one

While we don’t incorporate companies, we can help you liaise with your lawyer to get this done, or even assist you to DIY

Final Thoughts

So, how do you set up an LTC?

At its core, it’s a three-step process:

1. Form a company
2. Elect LTC status
3. Maintain compliance

But the real value lies in:

• Getting the structure right
• Planning for tax outcomes
• Ensuring long-term flexibility

An LTC can be a powerful tool — particularly for property investors and small businesses — but only when set up correctly. Contact us for more info.