Legislation passed in December 2010 made important changes to the rules for qualifying companies (QCs) and loss attributing qualifying companies (LAQCs).
What the changes mean for QCs and LACQs
These changes mean that LAQCs will no longer be able to attribute losses to shareholders. The changes will affect all existing QCs and LAQCs, and also closed companies that may have wished to elect to use the qualifying company rules for income years starting on or after 1 April 2011.
A new tax entity known as a look-through company (LTC) has also been created, which provides for a transparent form of tax treatment. This is to ensure that income and expenses are shared according to the owner's effective interest in the LTC.
Changes to the QC and LAQC rules
For income years starting on or after 1 April 2011
- Elections to become a QC or LAQC can no longer be made.
- Existing QCs and LAQCs can continue to use the current QC rules (without the ability to attribute losses).
- Existing QCs and LAQCs are able to transition into a LTC, or change to another business entity (such as a limited partnership or sole tradership) without a tax cost.
Look-though companies (LTCs)
New tax entity, the look-through company (LTC), can be used for income years starting on or after 1 April 2011
For income tax purposes a LTC's income, expenses, tax credits, gains and losses are passed onto its owners, similar to the income tax treatment for partners in a partnership.
This is different from an LAQC because the owners of an LTC are taxed on the profit of the company, as well as being able to offset any losses from the LTC against their other income.
Date published: 15 Feb 2011
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