When you sell your shares in a look-through company (LTC) you are an “exiting owner”. Exiting owners are treated as disposing of their share of the LTC’s property. You will have to pay any tax associated with the disposal.
LTC share sale thresholds
Exiting owners only need to account for income tax if the sale exceeds certain thresholds. These thresholds do not apply to revocation of LTC status or liquidation of the company.
You will need to account for tax on the sale of shares if you are paid more than $50,000, less liabilities, above the total net book value of your share of the LTC’s property. If you have sold any LTC shares in the past 12 months these will also be considered for this threshold.
If the $50,000 threshold is exceeded, the entire amount is treated as your taxable income.
If the LTC share sale threshold is not exceeded
The entering owner is treated as acquiring their interests in the LTC’s underlying property for the same cost the exiting owner acquired them.
If the LTC share threshold is exceeded
The entering owner is treated as acquiring their interests in the LTC’s underlying property for the amount paid for the shares.
Trading stock threshold
If the LTC’s total annual turnover is $3 million or less in the year of disposal, exiting owners do not have to make a revenue accounting adjustment.
Depreciable tangible property
Exiting owners don’t have to account for depreciation recovery or loss on their share if the total cost was $200,000 or less when the LTC was first acquired.
You do not need to perform a base price adjustment for any interest held by the LTC in a financial arrangement if:
- it was necessary for the LTC to enter it as part of its business, but it is only incidental to the LTC’s business
- you are not in the business of holding financial arrangements.
Short-term sale and purchase agreements
Disposal of look-through interests that included a short-term agreement for sale and purchase is excluded income for the exiting owner.
If the LTC 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.
Allocating income and losses after a change in shareholding
You are treated as holding the LTC’s property and assets directly in proportion to your effective look-through interest. If the shareholding of the LTC varies during the year, you must determine your allocation of income and losses.
Two methods are available: the average yearly interest, and the accounts method using the actual look-through interest. The actual look-through interest method may only be used if all owners agree to this.
If the LTC’s assessable income is $3 million or more during a 12-month period
You may be required to use the accounts method if we decide it will provide the most accurate allocation of income and losses. We’ll notify you if we decide the LTC must use this method. To find out more about taxing an LTC’s income check out our guide.