MEET THE LAQC EXPERTS
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WHAT IS AN LAQC?
What is an LAQC?
A loss attributing qualifying company (LAQC) is simply a normal company that has special tax status that has elected to be an LAQC.
LAQC’s are useful because if you are a property investor, the losses your rental property makes are attributed to the individual shareholders to offset against their personal income. This can result in a lower provisional tax liability or a refund of PAYE paid.
In many circumstances, capital profits of a business to be distributed tax exempt.
As a result, many New Zealand property investors and business owners use them for investing in property and operating businesses through, because they allow a host of tax advantages not afforded by an ordinary company.
With a normal company, if the company were to make a loss, losses can only be offset against future profits.
For example, if you make a loss of $20,000 then you will need to wait the company shows a profit of $20,000 before the $20,000 loss can be applied to be tax exempt.
For rental property investors, this may cause issues. If the property is fully ‘geared’ and making the full depreciation claims, it may be a very long time (even years) before the company is profitable and can therefore take advantage of the applicable tax losses that it has to carry forward.
With an LAQC the larger income earner can own all the shares and have all the losses claimed at the higher tax rate, which may amount to many thousands of dollars in tax refunds.
Furthermore, you can sell LAQC shares to a family trust without depreciation.
A Typical Example
Here’s an example:
Let’s take Mary (a rental property investor). Mary has a salary of $80,000 and pays normal tax through PAYE.
Mary also owns several investment properties in New Zealand and makes a loss of say $20,000.
With an LAQC, Mary should only have paid tax on $60,000 of her $80,000 salary. As a result, Mary is eligible for a tax refund for all of the tax she paid on her income between $60,000 and $80,000.
Currently, the tax rate applicable for individuals earning over $60,000 is 39%, Mary can expect a refund of $7,800.
If Mary had NOT elected to set up an LAQC and instead operate her properties through a regular company or a Family Trust that was NOT and LAQC, Mary would have to wait until the entity became profitable before receiving any tax relief.
IRD Criteria for becoming an LAQC
The Inland Revenue Department has certain criteria when it comes to setting up a LAQC. This list below is a summary only. For more information, please request a call or ask our experts a question.
- Must not be a foreign company;
- Must have fewer than 5 shareholders;
- All shareholders and directors must have elected that the company become an LAQC and not have revoked this status;
- The directors must have elected to become personally liable for their share of any income tax not paid by the company (this is quite a big difference between normal companies and LAQC’s);
- All shares in the company must carry the same rights
If you are unclear about how all this affects you, go ahead and request free information.
Taking the Next step
Setting up an LAQC is not complicated if you know what to do. The hard part is creating a solution that aligns with your goals, your life and your financial situation.
Issues that impact on LAQC formation include family trust options and asset protection including structuring of businesses. Plus there are pitfalls that need to be explained properly and managed.
At GRA we help both small to medium sized businesses and property investors get the most out of LAQC’s, minimising tax and ensuring asset protection is maximised.
How do we do this?
We take a holistic approach and provide expert one-stop-shop services that, to be honest, other Accounting firms only dream about.
Instead of selling or churning out LAQC’s, instead we focus on a goal of offering long-term and great value solutions that put money in your back pocket.
It’s as simple as requesting a free call to discuss your situation.
We think that’s the best way to do business. How about you?
What is an LAQC?
MEET THE LAQC EXPERTS
Matthew Gilligan CA
Matthew is a prominent Chartered Accountant, specialising in taxation and commercial structures.
Expert in LAQC, tax and planning business or property structures, his focus is on improving asset protection and minimising taxation commitments of clients.
Matthew is a well known speaker on asset planning and property matters. He presents annually at Thrive Auckland and Thrive Waikato. He also speaks to various Property Investor Association groups, Chambers of Commerce, Retailers Associations, Builders Association amongst other groups in society.
For tax, LAQC and market commentary , have a look at Matthew’s Blog
John Rowe CA
John is a Director and Shareholder of Gilligan Rowe + Associates where he leads the Business Services Advisory Team.
Property accounting including LAQC’s and taxation is a specialty of John’s team.
In addition to managing the delivery of advisory and accounting services to a large diverse client base, John specialises in providing practical and technical expertise to business owners and professional practices.
But it’s John’s commitment to providing clients with a high level of service that makes the difference. His leadership and rare ’stewardship’ approach to his team means that their dedication is felt by clients.
John regularly presents to property groups, business owners, trade associations and national business development organisations.
Prior to joining Gilligan Rowe & Associates Ltd, John worked in a specialist litigation support and valuation practice, assisting high net worth individuals and publicly listed companies with new business set ups, expansions, profit improvement, compliance, tax advice and internal management.
Take a look at John’s blog and read articles designed to keep you up to date and informed with a range of issues relating to business accounting including articles on LAQC matters.
Janet Xuccoa BCom LLB
Janet is a director and shareholder in Gilligan Rowe & Associates Ltd. She holds an accounting degree and a law degree and has gained much knowledge and experience from working in New Zealand law and accounting firms.
Janet is a well known author on trustee matters and has written numerous articles for different publications including the New Zealand Property magazine. Currently, she writes for Business to Business Newspaper, Essentially Home Magazine, Mothers On Line and Squirrel.
She is also completing a book with Matthew Gilligan and John Rowe which is intended to be published 2009.
Janet is a renowned speaker and presents at seminars held by Property Groups, Chambers of Commerce, Retailers Associations, Women’s Groups, Banking Institutions, Home Shows, Mortgage Brokers and Management Organisations. She has also presented at Thrive Auckland and Thrive Wellington, the biggest business events held in New Zealand.
At Gilligan Rowe & Associates Ltd Janet leads the Professional Trustee and Estate Planning division, assisting Trustees and Directors to comply with their duties, ensuring Trusts and Companies are operated efficiently and lawfully. She is also responsible for marketing within the firm.
Through the expertise Janet possesses, she is able to assist clients develop and maintain effective structures to purchase property, conduct business activities and protect their assets through a family trust.
Check out Janet’s blog.
