The gist is that LAQC owners will be given the option to become a new “look-through company” where profits & losses will flow to owners or transition to a sole trader, partnership or limited partnership.

If no election to take up these options is made, the companies will remain QC’s without the ability to attribute losses.

Selecting the right option for your individual circumstances becomes critical.

We suggest LAQC owners first determine if their companies will become profitable in the absence of building depreciation.

Then determine if the shareholding split remains appropriate. If not, it will need to be changed before 01 April 2011. After that, depreciation recovery will be triggered by changing shareholding.

We suspect most LAQC owners will opt to become LTC’s and avoid the administrative costs of liquidating the companies and moving properties and mortgages back into personal names.

Talk to your advisors before 01 April 2011.

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Sole owner

This structure provides ownership for one person who has total control of the property.

Joint Tenancy

A joint tenancy occurs when there is more than one owner of a parcel of land, and most importantly, it bestows a right of survivorship. Therefore, on the death of one joint tenant, their interest in the land passes to the remaining tenant(s).

Tenancy in Common (co-owners)

There is no right of survivorship, and on the death of one tenant in common, the interest in land will be dealt with in accordance with the tenant’s will.

Ordinary Company

The benefits of an ordinary company are the company tax rate of 33% and limited liability. The cost of incorporation of a company in NZ is about $NZ300 with annual costs about $NZ100 for an annual return. Companies of this sort are filed electronically and returns are also completed electronically.

Loss attributing qualifying company (LAQC)

The company’s losses are passed onto the shareholders which may then be used to offset the shareholder’s taxable income. The dividends paid from capital gains are tax exempt in the hands of the shareholders. However the shareholders are personally liable for the tax liabilities of the company. Read more about LAQC.

Family Trust

A Family Trust can be used to good effect to achieve a number of purposes including:

1. Protecting the long term interests of yourself, your spouse and your children
2. Removing assets from the scope of family protection or testamentary promise actions
3. Protecting your assets against claims by future creditors and predators
4. Protecting your assets against matrimonial property claims including the interests of your children against claims by their spouses and incidentally possibly maximising the benefits that can be obtained from Work and Income New Zealand
5. Possibly obtaining other tax benefits including avoidance of the impact of some form of capital gains tax or other
6. Replacement for estate duty
7. Enabling greater income tax deduction of charitable gifts

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