LAQC - to be phased out

Thu, 27 Jan 2011 09:30:35 +1300

Loss Attributing Qualifying Companies to be phased out

From the tax year beginning on or after 1 April 2011 Loss Attributing Qualifying Companies (LAQC) will automatically become Qualifying Companies (QC). If the company makes no alternate elections if will become a QC, in which case any losses generated by the company will be carried forward to offset against future profits derived by the QC.

Alternatively as part of the transitional rules the shareholders could elect out of the QC regime or could transition the company into a Look through Company (LTC), a Limited Partnership, a Partnership or Sole Trader. A six month transition period is available at the start of the first and second income years in which to change to one of the alternative structures without triggering any tax costs.

Now is a good time for owners of LAQC’s to give some consideration as to what structure will be best suited for their needs, as there are pros and cons associated with each of the structures. For those not familiar with the concept of an LTC it operates in a similar manner to a standard partnership in that it is transparent for tax purposes so that all of the income and expenses are deemed to have been derived by the shareholders. Under the LTC rules, a shareholder will derive a loss, but will be restricted to offsetting that loss against their other income if the shareholder does not have a sufficient ownership basis in the company. Conversely if the LTC makes a profit this will be distributed directly to the shareholder and cannot be retained by the LTC as was previously the case with LAQC’s and is still the position with QC’s and standard companies.

Before deciding which structure is appropriate some matters for you to consider are:

If the LAQC owns assets what time frame are you intending to retain the assets over.
What is the current market value of the assets in comparison to the carrying book value
If the business is looking at further expansion or is it intending to wind down
What level of debt is the business currently carrying, and what plans are there for either retiring debt or increasing borrowings.

You should then be in a position to discuss this matter further with your accountant at Smith McCoy Alford Limited.

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Mon, 15 Nov 2010 09:30:35 +1300

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LAQC - to be phased out

Xero Software Introduction

Xero. Take control of your business