Business Express

In the Budget last May the Government announced what seemed like wide-spread changes to the tax rules that effect property investors. On 20 December 2010 the legislation was enacted and will come into effect (for the most part) on 1 April 2011. In summary, these are:

• Loss of the LAQC status
• Eliminating the deduction of depreciation on buildings
• Eliminating the 20% loading on depreciation of new assets

Perhaps the most significant of these changes is the loss of the LAQC company tax benefits. LAQC stands for “Loss Attributing Qualifying Company.” An LAQC is a normal company in every respect except that any losses made by the company may be passed directly to the shareholders where they can be offset against other income, thereby reducing personal tax. This made it ideal for any property investment that (as is often the case in the current market) results in tax losses.

But as from 1 April 2011 this option will disappear as we know it. If you have an LAQC you will need to consider making changes if you want to retain aspects of this tax treatment. There are several options:

• Stick your head in the sand and do nothing. Your company remains a Qualifying Company but looses the ability to allocate losses to shareholders.
• Change your stripes and become a Look Through Company. LTCs are a new tax treatment very similar to LAQCs that treat the company as invisible for tax purposes. Effectively, the profit or loss of the company is taxed in the hands of the owners. There are some potential problems though so they may not be right for everyone.
• Go natural – leave the QC regime completely and be taxed as a regular company.
• Get a DNA transplant and become a Partnership, Limited Partnership or Sole Trader.

The right option for you will depend on your unique situation. You should get professional advice on how to proceed.

At Business Express we can help you make the right decision and execute it. We can also help you with all your accounting needs, from investment property tax returns through to providing stress-free management of your business accounting function.

We’re running a seminar on the tax issues for Investment Properties at the Hutt Valley Chamber of Commerce on April 19. Alternatively, call us for a free consultation on 04-831-1232 or email us on getincontrol@business-express.co.nz.