FAQ’s

A Look Through Company is a normal company, set up through the Companies office (www.business.govt.nz/companies) that has elected with IRD to become an LTC. The election is done through form IR862 on www.ird.govt.nz

The major difference between a LTC and a normal company is that with a LTC, the profit or loss for tax purposes flows through to the shareholders in proportion to their shareholding. This now only applies to commercial properties, thanks to the new ring-fencing legislation.

A LTC is frequently used by property investors to give flexibility with where the profit or loss will flow to. For example, if the LTC owned a rental making a $10,000 loss, with one partner earning $200,000 p/a (being on the highest tax bracket at 33%), and the other partner earning $0 p/a. The higher-earning partner could own 99% of the shares, so receive $9,900 of the losses against their income, giving a tax refund of $3,267.

In 2019 the Government introduced a new ring-fencing legislation, which means you can no longer offset residential property losses against other income.

For example, if for the year ending 31/3/21, you had a rental property in your personal name or in a LTC where you own all of the shares. Let’s say it incurred a loss for tax purposes of $10,000, the loss would have offset your personal income from salary or wages. From the 1/4/19, if you make the same loss in the same way, there will be no tax refund.

So, when can the losses be used? With this new legislation change, the losses carry forward, year after year, until you have some profits from the residential rental properties that you can offset. Alternatively, if you have multiple residential rental properties, you might be able to offset the profit from one rental against a loss from another. If you have these rentals in different structures, it could become tricky – talk to us to understand more. Learn more about Ring Fencing of Rental Losses.