By Phil Barlow – 6 September 2011

Recent amendments to the Qualifying Company (QC) regime have resulted in the termination of LAQCs. Time is now running out for QCs that want to transition to a LTC, a sole tradership or partnership in the income year beginning 1 April 2011.

If companies that were LAQCs at 31 March 2011 do nothing, they will automatically become QC’s from 1 April 2011.  This means any losses incurred by the QC can no longer be passed out to shareholders.

The Government has however introduced some concessionary transitional measures whereby a QC can restructure into another entity or elect to become a “Look Through Company” (LTC).  Income and expenses of a LTC are attributed to the shareholders of the LTC.

A QC can transition to a LTC, a sole tradership or a partnership without any tax cost in either the first or second income year starting on or after 1 April 2011 (the “transitional year”).  In order for a company to do so, the IRD must receive the relevant election (IR 862 for LTCs or IR891 for sole traderships, partnerships/limited partnerships) within six months of the start of the transitional year.

Therefore, time is now running out for QCs that want to transition to a LTC, a sole tradership or partnership in the income year beginning 1 April 2011.

Remember, these  elections must be filed with the IRD by 30 September 2011.  Please contact your Hayes Knight advisor ASAP if you had a LAQC and require any further information on what this means for you.

Alternatively please contact our Tax Team:

Phil Barlow
Tax Director
T + 64 9 414 5444
E phil.barlow@hayesknight.co.nz

Shelley-ann Brinkley
Senior Tax Manager
T +64 9 414 5444
E shelley-ann.brinkley@hayesknight.co.nz