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Glossary of look-through company terms

List of terms used in this section
Effective look-through interest Flat-owning company
Foreign LTC holder Foreign-sourced amount
Grandparented Māori authority Grandparented tax charity
Look-through counted owner Look-through interest
Māori authority New Zealand tax resident
Tax charity  

Effective look-through interest

Effective look-through interest determines each owner's allocation of income or losses from the LTC.

Before the 2017-18 income year, each owner's effective look-through interest was measured by the percentage of decision-making rights carried by their shares in the company in relation to dividends or other distributions, the company's constitution, variation of the company's capital and the appointment or electing of directors.

If the voting interest or market value interests of the LTC varies during the year (eg, when ownership of some of the LTC's shares changed hands), either the average interest method or the accounts method will be used to establish each owner's effective look-through interest.

For the 2017-18 and later income years it is no longer necessary to measure the percentage of decision-making rights for:

  • distributions (including dividends) made by the company
  • the constitution of the company
  • varying the company's capital
  • appointing and/or electing directors of the company.

A person's effective look-through interest is determined solely based on the number of shares the person holds in the company.

Find out more about accounting for LTC income/deductions

Flat-owning company

Flat-owning company means a company whose:

  • constitution provides that every registered shareholder is entitled to the use of a specific residential property in New Zealand owned by the company, and
  • only significant assets are residential properties available for the use by specific shareholders, and funds reserved for meeting the company's costs.

Foreign LTC holder

Foreign LTC holder means a person who is a:

  • non-resident for tax purposes
  • trustee of a trust if the trust has a non-resident settlor but only to the extent that the settlements made on the trust are by non-resident settlors

Find out more about New Zealand tax residency

Foreign-sourced amount

Foreign-sourced amount means an amount of income that is not treated as having a source in New Zealand under sections YD 4 and YZ 1 of the Income Tax Act 2007.

Grandparented Māori authority

Grandparented Māori authority means a Māori authority that before 3 May 2016:

  • was an owner of the LTC
  • had entered into an arrangement to become an owner of the LTC
  • was a beneficiary of a trust that is an owner of the LTC.

Grandparented tax charity

Grandparented tax charity means a tax charity that before 3 May 2016:

  • was an owner of the LTC
  • had entered into an arrangement to become an owner of the LTC

Look-through interest

Look-through interest means a person's shares in a look-through company.

An LTC can only have shareholders who are natural persons or corporate trustees.

For the 2016-17 and earlier income years

Each look-through owner (shareholder) must have the same rights, proportionally, to vote or participate in any decision-making concerning the entity or LTC's:

  • distributions
  • constitution
  • capital variations
  • appointment or election of directors

Each look-through owner (shareholder) must have the same rights, proportionally, to distributions of the entity or LTC's profits or assets if the entity or LTC acquires, redeems, or cancels its shares, or reduces or returns its share capital (whether in liquidation or not).

For the 2017-18 and later income years

Shares in an LTC can have different voting rights provided each look-through owner has the same proportional rights, to distributions from the entity or LTC.

Look-through counted owner

Look-through counted owner means:

For the 2016-17 and earlier income years
  • A natural person that is not a trustee and who has a look-through interest for the entity.
  • A natural person who has derived, as beneficiary income of a trust, income that arose from a direct or indirect beneficial interest in a look-through interest for the entity in the current income year, or one of the last three income years.
  • A trustee of a trust that has a direct or indirect beneficial interest in a look-through interest for the entity, treating co-trustees as one person.  This is as long as the trust has not distributed as beneficiary income all income that arose from a direct or indirect beneficial interest in a look-through interest for the entity for the current income year and all of the last three income years .
  • A natural person that has a voting interest or a market value interest in relation to a company that has derived, as beneficiary income from a trust, income that arose from a direct or indirect beneficial interest in a look-through interest for the entity in the current income year, or one of the last three income years.
For the 2017-18 and later income years
  • A natural person that is not a trustee and who has a look-through interest for the entity.
  • A natural person who has derived, as beneficiary income of a trust, income that arose from a direct or indirect beneficial interest in a look-through interest for the entity in the current income year, or one of the last three income years.
  • A natural person who has received a distribution from a trust with a direct or indirect beneficial interest in a look-through interest for the entity in the current year or one of the last three income years, if the relevant year is after the 2016-17 income year.
  • A trustee of a trust that has a look-through interest for the entity, or a direct beneficial interest in a look-through interest for the entity, treating co-trustees as one person, if the trust has no beneficiary that is a counted as a look-through counted owner.
  • A natural person that has a voting interest or a market value interest in relation to a company that has derived, as beneficiary income from a trust, income that arose from a direct or indirect beneficial interest in a look-through interest for the entity in the current income year, or one of the last three income years.
Note

For the 2017-18 and later income years when a trustee owner makes a distribution to a beneficiary which is a company, the entity no longer meets the criteria to be an LTC for the income year, or the two following income years.

Look-through counted owners who are relatives or co-trustees are treated as one person.

A relative is a person connected with another person:

  • to the second degree of blood relationship to the other
  • by marriage, civil union, or de facto relationship with the other
  • by marriage, civil union, or de facto relationship with a person who is to the second degree of blood relationship to the other
  • through adoption as a child of the other or as a child of a person who is within the first degree of relationship to the other
  • as the trustee of a trust which a relative has benefited from or is eligible to benefit from
  • by marriage, civil union or de facto relationship and remains a relative even if that relationship is later dissolved or one partner dies.

Māori authority

Māori authority means an entity which has been granted Māori authority status.

Find out more about Māori authorities

New Zealand tax resident

New Zealand tax resident means a person who is resident for tax purposes in New Zealand.

Find out more about New Zealand tax residency

Tax charity

tax charity generally means a charity that is exempt from income tax either under the Charities Act 2005 or Income Tax Act 2007.

Find out more about tax charities