It is nearly a year since Look-Through Companies (LTCs) came in to existence with the abolishment of loss attributing qualifying companies (LAQCs) on 1 April 2011.
Look-Through Companies will be required to file a different style of income tax return with the IRD for the first time for the 2012 income tax year which ends on 31 March 2012.
Some of the things to be aware of when completing a tax return for a LTC are:
- While an LTC is required to file an income tax return it does not pay income tax itself, instead the LTC’s income and expenses are passed on to its owners (shareholders);
- Any gains or losses derived by the LTC are passed on to its owners;
- Any tax credits (for example resident withholding tax) or imputation credits are passed on to the owners;
- An LTC’s income and expenses, tax credits, gains and losses are passed through to its owners in proportion to the number of shares they have in the LTC;
- Income received by an owner from an LTC is included in the owner’s tax return and is taxed at the owner’s marginal tax rate;
- Losses received by an owner from an LTC can be used against their other income subject to the loss limitation rules. The loss limitation rule ensures that losses claimed are restricted to the owner’s economic loss in the LTC;
- LTC’s cannot pay shareholder-employee salaries to their owners. Instead, payments to a working owner are subject to PAYE. The working owner must be employed under an employment contract;
- LTCs do not keep an imputation credit account;
- LTC’s will file their income tax return using an IR7 Income Tax Return: Partnerships (although an LTC is a company the partnership income tax return form is used because for income tax purposes an LTC is similar to a partnership);
- Look-through applies for income tax purposes only. An LTC is still recognised as a separate entity for GST, PAYE, FBT etc purposes.