IRD's new Look Through Companies (LTC) are looking uglier by the day

Date: 12 July 2012

Remember Loss Attributing Qualifying Companies (LAQC) and how the IRD thought the LAQC regime was being used for tax avoidance. The IRD response was to kill off the LAQC regime and create an even uglier tax animal called Look Through Companies (LTC).

But TvA saw it coming and made the right call.

We have heard there were 137,000 LAQCs before the IRD killed them off. Apparently about 25% of those companies elected to jump into the LTC regime, and some are already regretting that call.

Last year at TvA our policy was to look at alternatives to the LTC that achieve the same tax benefit but without the extra risk and compliance cost.

Three reasons not to go near Look Through Companies (LTC);

  1. IRD introduced LTC regime in April 2011. The actual LTC tax law has not been finalised by IRD or Parliament but taxpayers, and their accountants, are expected to prepare tax returns now without the rules being locked down.
  2. LTC regime was aimed at limiting the tax loss to individuals. Outcome lower tax refunds. But no. Based on how the IRD are applying the "law" the regime is an expense limitation regime which could turn a LTC tax loss into a taxable profit. This is a fundamental downside.
  3. Each expense limitation rule should be checked before sending an LTC tax return to the IRD. 

We made the right call for our clients. Will keep you posted.

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