Investment property and LTCs: A good match? (Or as Shakespeare might have said “To LTC or not to LTC: that is the question.”) For many years, property investors across New Zealand embraced Look-Through Companies (LTCs) as the structure of choice for holding rental properties. Accountants, lawyers, mortgage advisers, and investors often recommended LTCs because they combined the legal protection of a company with the tax transparency of personal ownership.

However, tax law changes over the past decade have altered the landscape significantly. Rules relating to bright-line tests, interest deductibility, and residential property loss ring-fencing have forced investors to reconsider whether an LTC still delivers the benefits it once did.

This raises an important question: Are investment property and LTCs: a good match?

The answer depends on your objectives, income level, asset protection concerns, long-term plans, and the type of property you own. In some situations, an LTC remains an excellent option. In others, a simple personal ownership structure may achieve a similar result with less compliance.

This article explores the advantages, disadvantages, and modern realities of using an LTC to hold investment property in New Zealand.

Important: Some historical discussions regarding LTCs focused heavily on the ability to offset rental losses against other income. Those discussions occurred before residential rental loss ring-fencing rules came into effect. Today, rental losses from residential investment properties often face restrictions that did not previously exist. Accordingly, some historical advantages of LTCs have reduced in significance. The above video was recorded before the ring-fencing laws took effect in 2019. However, most of the points in the video remain valid.

 

What Is an LTC?

An LTC, or Look-Through Company, is a special type of company recognised under New Zealand tax law. From a legal perspective, it operates like a standard limited liability company. It can own assets, incur debts, enter contracts, sue, and be sued. For tax purposes, however, Inland Revenue “looks through” the company and attributes income, expenses, gains, losses, and tax credits directly to the shareholders.

This means the company itself generally does not pay income tax.

Instead:

• Rental income flows through to shareholders.
• Rental expenses flow through to shareholders.
• Tax losses flow through to shareholders.
• Taxable gains flow through to shareholders.
• Tax credits flow through to shareholders.

The shareholders then declare these items in their own tax returns. This unique combination creates both opportunities and responsibilities.

---

Why Did LTCs Become So Popular?

Before the creation of LTCs, many property investors used LAQCs (Loss Attributing Qualifying Companies). When LAQCs disappeared, LTCs became their natural replacement.

Property investors liked LTCs because they offered several attractive features:

• Limited liability protection.
• Tax transparency.
• Flexible allocation of profits and losses.
• Potential asset protection benefits.
• Familiar company structure.

Perhaps most importantly, losses could flow through to shareholders and potentially offset other taxable income. For investors with negatively geared properties, this created valuable tax refunds. At the time, many investors considered the structure almost a “best of both worlds” arrangement.

---

Understanding Limited Liability

One of the strongest arguments in favour of an LTC has little to do with tax. It relates to risk management. Property ownership involves exposure to potential claims. Tenants, contractors, visitors, neighbouring property owners, and regulatory authorities can all create legal risk.

When a rental property sits inside a company, the company generally becomes the party that owns the property. As a result, claims often target company assets rather than personal assets. While directors can still incur personal liability in certain situations, a properly operated company structure may provide an additional layer of protection. Many investors feel more comfortable knowing that rental property activities occur within a separate legal entity rather than under their personal name. For some investors, this benefit alone justifies the additional compliance costs.

---

The Tax Transparency Advantage

A standard company pays tax at a flat company rate. An LTC works differently. The tax system effectively treats shareholders as though they own the property directly.

For example, imagine a husband and wife own shares equally in an LTC that owns a rental property. The rental profit does not generally remain trapped inside the company. Instead, each owner returns their share of the profit in their personal tax return. This transparency avoids many of the complications that arise when profits accumulate inside ordinary companies. It also allows tax outcomes to align more closely with the shareholders’ personal circumstances.

---

Investment Property and LTCs: A Good Match for Portfolio Investors?

The answer often depends on the size and complexity of the portfolio.

An investor with multiple rental properties may value:

• Asset segregation.
• Structured borrowing.
• Professional governance.
• Ease of succession planning.
• Business-like administration.

As portfolios grow, some investors begin viewing property investment more like a business than a hobby. In those situations, an LTC can provide a framework that supports more formal management processes. The structure may also make recordkeeping simpler by separating investment activities from personal transactions. However, investors should weigh these benefits against annual accounting costs, maintenance obligations, and compliance requirements.

---

The Historical Attraction of Tax Losses

Historically, many property investors focused heavily on one feature:

Losses.

In the past, LTC losses could pass directly to shareholders. Investors often applied those losses against salary, wages, business income, or other taxable earnings. This ability created substantial tax refunds for some investors. Negative gearing became particularly attractive because tax savings reduced the after-tax cost of holding the property. However, the landscape changed significantly.

---

The Impact of Ring-Fencing Rules

This is where many older articles and videos require context. The residential property loss ring-fencing rules changed how losses operate.

Today, residential rental losses generally cannot offset unrelated income such as:

• Salary or wages.
• Business profits.
• Interest income.

Instead, losses generally remain trapped within the residential property activity and carry forward for future use. This means one of the major historical advantages of LTCs has reduced considerably for many residential landlords. An LTC still passes losses through to shareholders, but shareholders may face restrictions on how they use them. Therefore, investors should avoid relying on older material (such as the video above) without considering subsequent legislative changes. When reviewing historical discussions about LTCs, always ask whether the information predates ring-fencing.

---

Interest Deductibility Continues to Matter

Interest deductibility has become another major factor in ownership decisions. Rules introduced and later amended created substantial uncertainty for residential property investors. Depending on the nature of the property, investors may encounter different interest limitation outcomes. New builds, existing rentals, development projects, and commercial properties can all produce different results.

An LTC does not automatically create interest deductions: The underlying tax rules determine deductibility. Investors should therefore avoid assuming that transferring a property into an LTC automatically improves their tax position. Professional advice remains essential.

---

Financing Considerations

Banks generally lend to LTCs, but lending arrangements may differ from personal lending.

Many lenders require:

• Personal guarantees.
• Additional documentation.
• Director guarantees.
• Annual financial statements.

Some lenders assess LTC applications differently from personal applications. As a result, finance approval may involve more paperwork. Investors should discuss ownership structures with mortgage advisers before signing purchase agreements. Changing structures after obtaining lending approval can sometimes create unexpected complications.

---

Administration and Compliance Costs

An LTC is not free.

Owners must maintain:

• Annual company records.
• Shareholder records.
• Financial statements.
• Tax filings.
• Company registers.

Many investors also engage accountants to prepare annual accounts and tax returns. For investors with a single rental property generating modest income, compliance costs may outweigh the benefits. For larger portfolios, the additional structure may justify the expense. The numbers matter. An ownership structure should create more value than it costs.

---

Succession and Estate Planning Benefits

Many investors overlook succession planning. At some point, ownership will need to change.

This might occur because of:

• Retirement.
• Death.
• Relationship changes.
• Asset protection planning.
• Family wealth transfers.

An LTC can simplify certain succession arrangements because owners transfer shares rather than transferring property titles. While legal advice remains essential, some investors find the corporate structure easier to manage when planning long-term family wealth strategies. This flexibility often becomes more important for investors building substantial property portfolios.

---

Common Misconceptions About LTCs

Several misconceptions continue to circulate.

“An LTC Eliminates Tax”

It does not. Income still reaches shareholders and remains taxable.

“An LTC Guarantees Asset Protection”

Not necessarily. Personal guarantees and director obligations still matter.

“An LTC Always Produces Better Tax Outcomes”

Sometimes it does. Sometimes it does not. The correct answer depends on individual circumstances.

“Everyone Should Own Rentals Through an LTC”

One size rarely fits all. Different investors have different objectives. The best structure for one investor may be entirely inappropriate for another.

---

Situations Where an LTC May Make Sense

An LTC may deserve consideration when:

• Multiple investors own property together.
• Asset protection concerns exist.
• Investors hold several rental properties.
• Long-term succession planning matters.
• Borrowing structures favour corporate ownership.
• It is a land-and-build or turn-key scenario involving a period of paying interest during the build phase.

In these cases, the advantages may outweigh the compliance burden.

---

Situations Where Personal Ownership May Suffice

Personal ownership may remain attractive when:

• The portfolio is small.
• Simplicity is important.
• Compliance costs need minimising.
• Asset protection concerns are limited.
• Tax outcomes remain broadly identical.

Many investors today achieve acceptable outcomes without introducing additional entities. Again, circumstances drive the decision.

---

Questions Every Investor Should Ask

Before establishing an LTC, consider:

• Why am I creating the structure?
• What problem am I trying to solve?
• Am I seeking tax benefits, asset protection, or both?
• Will the structure save more than it costs?
• How will financing work?
• What are my long-term plans for the property?
• How will ring-fencing affect any losses?
• Will the ownership structure still make sense in ten years?

The answers often reveal whether an LTC truly suits your objectives.

---

Investment Property and LTCs: A Good Match in the 2027 Financial Year?

To LTC or not to LTC: that is the question. What is the answer? Sometimes. LTCs continue to offer genuine benefits. They remain useful tools for investors who value limited liability, structured ownership, and long-term planning. However, the environment has changed substantially from the period when many LTC promotional articles first appeared.

Ring-fencing rules have reduced the value of some loss-utilisation strategies. Interest limitation rules have changed the tax landscape (they have been removed but a change of government could see them return). Compliance costs have increased. Lenders have become more sophisticated in their assessment processes.

As a result, investors should evaluate LTCs based on current law rather than historical assumptions. When an investor asks, “Investment property and LTCs: a good match?”, the correct response requires a careful review of ones personal circumstances. No single answer fits everyone.

---

Seeking Professional Advice Before You Decide

Ownership structures often involve long-term consequences.

Changing structures later can trigger:

• Legal costs.
• Accounting costs.
• Financing complications.
• Bright-line considerations.
• Administrative challenges.

Getting the decision right from the beginning can save significant time and money. An experienced property accountant can model different scenarios and explain how current tax legislation affects each option. That analysis often proves more valuable than focusing solely on historical advantages.

---

Summary

LTCs remain an important ownership option for New Zealand property investors. They combine limited liability protection with tax transparency and can provide advantages for asset protection, succession planning, and portfolio management. However, investors should not rely solely on older guidance. The introduction of residential property loss ring-fencing and other tax reforms means that some historical benefits no longer operate as they once did. What worked ten years ago may not deliver the same result today.

So, investment property and LTCs: a good match? In some cases, absolutely. In others, personal ownership or alternative structures may prove more appropriate. The right answer depends on your goals, tax position, risk profile, financing arrangements, and long-term plans. Before establishing an LTC, take the time to evaluate the advantages, disadvantages, and current tax rules. A carefully chosen structure can support your investment strategy for years to come, while the wrong one may create unnecessary cost and complexity. Talk to us today.