When you sell your shares in a look-through company (LTC) you're an “exiting owner”. You're treated as disposing of your share of the look-through company's property. You have to pay any tax associated with this sale.
When you have to pay tax
Exiting owners only need to declare and pay tax on the sale of look-through company shares if the income is over certain amounts - "thresholds". These thresholds do not apply when the look-through company status is revoked or if the company is liquidated.
You must declare and pay tax on the sale of shares if you're paid more than $50,000, minus liabilities, above the total net book value of your share of the look-through company's property. If you've sold any look-through company shares in the past 12 months these amounts will also be counted.
If your income from these sales is higher than the $50,000 threshold, the entire amount is treated as your taxable income.
If your income from look-through company share sales is less than $50,000
The entering owner (whoever buys the shares from you) is treated as getting their interests in the look-through company's underlying property for the same cost as you originally got them.
If your income from look-through company share sales is $50,000 or more
The entering owner is treated as getting their interests in the look-through company's underlying property for the amount they paid for the shares.
What to do in specific situations
Trading stock threshold
If the look-through company's total yearly turnover is $3 million or less in the year that shares are sold, exiting owners do not have to make a revenue accounting adjustment for trading stock.
Accounting for depreciation
Exiting owners do not have to account for depreciation recovery or loss on their share of any depreciable tangible asset if the asset's total cost was $200,000 or less when the look-through company first got it.
Exiting owners do not need to perform a base price adjustment for any interest the look-through company holds in a financial arrangement if:
- the look-through company needed to enter the arrangement as part of its business, but the arrangement is not the main part of the look-through company's business
- you are not in the business of holding financial arrangements.
Short term sale and purchase agreements
Exiting owners do not need to declare or pay tax on look-through interests that included a short term agreement for sale and purchase - this is excluded income.
If the look-through company property includes female breeding livestock
If the livestock is valued using the national standard cost scheme or cost price method, the entering owner may be treated as if they had originally purchased and held the livestock.
How to sort out income and losses after a change in shareholding
As a look-through company owner, you're treated as holding the company's property and assets directly in proportion to your effective look-through interest. If the look-through company's shareholding changes during the year, you must work out your share of income and losses.
There are 2 methods you can use:
- the average yearly interest
- the accounts method using the actual look-through interest.
You can only use the actual look-through interest method if all owners agree.
If the look-through company's assessable income is $3 million or more during a 12 month period
You may need to use the accounts method if we decide it will provide the most accurate allocation of income and losses. We’ll contact you if we decide the look-through company must use this method.
To find out more about taxing a look-through company's income, check out our guide.