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 exactly how to set up an LTC, what decisions you need to make, and the practical considerations that will save you time, money, and stress down the track.

What Is an LTC and Why Would You Use One?

Before diving into how to set up an LTC, 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

HOW DO YOU SET UP AN LTC? 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 in how to set up an LTC 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?

The original source suggests:

• It is common to issue at least 100 shares 

This provides flexibility when allocating ownership percentages.

Step 2: Elect LTC Status with Inland Revenue

Once the company is formed, the next step in how do you set up an LTC is making the LTC election.

What is an LTC election?

An LTC election is a formal request to Inland Revenue to treat the company as a Look-Through Company for tax purposes.

How to complete the LTC election

You will need to:

• Complete the LTC election form
• Submit it to Inland Revenue (or via myIR)
• Specify the correct year of election

Timing Is Critical

One of the most common mistakes is getting the timing wrong.

• The election must be made by specific deadlines
• Late elections can be costly or complicated

This is an area where professional advice is strongly recommended.

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

Next in the how to set up an LTC process 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:

• Residential rental property only, GST registration is not recommended!

This is an important point that is often misunderstood.

Step 4: Decide Whether Your LTC Will Be an Employer

Another key step in how do you set up an LTC 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 how to set up an LTC, 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

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 why you would set up an LTC helps reinforce the process.

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

When answering “how do you set 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?

While the original source does not specify exact timing, in practice:

• Company formation is typically quick
• LTC election depends on IRD processing
• Full setup depends on documentation and decisions

If organised properly, the process can be completed efficiently.

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.

HOW DO YOU SET UP AN LTC? 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.

The original article notes:

If the process feels daunting, there is help available through official resources and professional advisors.

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.