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You can elect to become a look-through company (LTC) by completing a Look-through company election (IR862) form. When shareholders choose to become an LTC they are agreeing to use the LTC rules for the company, including becoming liable for any income tax payable on the company's profit.
Everyone who owns a look-through interest in the company must sign the election form for it to be valid.
If a person owns an interest in an LTC and does not have legal capacity to sign (that is, they are under 18 years old or not legally able to sign), a guardian, person with power of attorney, or a legal representative should sign for the person.
If shares are held by:
A director of the company, or an agent authorised by a director must complete the director's election on the form confirming that:
When a company is newly incorporated or first starts to trade, the election form must be completed by the same date that their first return is due, including any extension of time. The election form can be completed after the return is filed, as long as it is received before the due date. It will then apply from the start of the first income year.
If a company has been in existence and trading for some time, you must send us the election form before the start of the income year it applies for.
We will send you a letter advising whether the company has been accepted as an LTC or not.
If your company has previously been an LTC, it can't become one again for the year LTC status was lost or for either of the two following income years.
When a company wishes to become an LTC, they need to consider a number of different factors.
When a company becomes an LTC, any loss balance from previous years is extinguished and can't be carried forward. These losses can't be used by the LTC and are no longer available to the company.
If the LTC was a qualifying company (QC) or loss attributing qualifying company (LAQC) that transitioned to the LTC rules within either of the first two income years beginning on or after 1 April 2011, the owners of the LTC can use these losses against future LTC income.
When an existing company becomes an LTC there is a calculation of income for each owner of the LTC. Each owner declares their proportion of this income in their own income tax return.
There were special rules in the first or second income year starting on or after 1 April 2011 where an existing QC/LAQC could have transitioned to an LTC. This option is no longer available for existing QCs.