Look Through Companies LTC Everybody Happy with Their Knowledge of Look Through Companies

Look Through Companies (LTC) - Everybody happy with their knowledge of Look Through Companies?

Just in case you are not, we are having evening seminars in both Napier and Waipukurau. Make sure that you secure your place at one of these evening presentations.

Lots of parking available, so come along, you may be surprised how we will make "Living and Working with LTCs even Simpler".

Last week, we indicated that this week we would cover:

Election Rules to become a LTC;
Consequences of Election;
Revocation of LTC Status; and the
Consequences of Revocation

Election Rules to Become an LTC

As yet the IRD has not published rules as to what it expects, but from what we have seen in the past, lets assume the following:

must be signed and dated by a director of the Company before it becomes an LTC
be in a form prescribed by the IRD - funny that;
specify the income year beginning on or after 1 April 2011, in which the company first becomes an LTC
be signed and dated by all persons who, on the date of signing the election, own look through interest in the LTC

Consequences of Election

If an existing company (that is one that is not a QC), elects to become a LTC, a number of consequences arise

any losses carried forward by the company are lost from the start of the first income year that the company is an LTC;
a calculation is required for the first income year to determine whether any income arises to shareholders on becoming an LTC;
Upon election to become an LTC, the ocmpany will continue to file an income tax return, however, it will no longer have a tax liability;
an LTC is only transparent from an income tax view, the ocmpany will continue to be liable for PAYE, GST and FBT.

Revocation of the LTC Status

While all shareholders in the Company are required to sign the initial election, only one shareholder is required to sign the opt out notice.

The opt out notice, will occur from the start of the income year after the date on which the notice is given, so if a notice is signed on the 1 June 2012, it will take effect from 1 April 2013.

Where the opt out notice is received, the company is unable to elect to become an LTC for the next two income years, so in the above example the years ended 31 March 2014 and 2015 would be out as well, effectively making it a three year period.

Consequence of Revocation

This is a big "Ouch". Where this happens, the following is deemed to take place.

The company will be taxed as a standard company for the income year the breach occurred;
A dividend must be declared on retained profits;
Sharholders of the Company are deemed to have sold the assets of the company at the market value at date of exit - ouch - depreciation recovered will become an issue.

Next week, we look at Partnerships and Sole Traders as an alternative to LTC.