Update on LAQC's
October 2010
This week the Government has provided some further information as to the likely changes to the Loss Attributing Qualifying Company (“LAQC”) rules proposed to take effect from 1 April 2011.
We have outlined the key points here. Draft legislation will be out this week and we will provide some further detail once we have had a chance to review the legislation.
- The new rules create a new tax entity called a look-through company (LTC) for closely held companies (that is, 5 or fewer shareholders owning at least 50% of the company). The shareholders in LTC’s will pay tax on profits but will also be able to claim losses subject to the loss limitation rule which means you can only offset losses to the extent of the “economic loss”. Economic loss is expected to be defined in the legislation.
- LTC’s retain their identity as a company and will still have their corporate obligations and benefits such as limited liability status
- The sale of shares in an LTC will be treated as a sale of the underlying assets – though a low value threshold will apply so small sales aren’t included
- QC’s and LAQC’s can continue to exist but won’t be able to pass losses to shareholders – the losses will be carried forward in the company
- The Government is reviewing the tax rules for dividends which may impact on the current QC rules
- You can choose to - do nothing and remain a QC, be taxed as an ordinary company (so revoke your LAQC status), be taxed as an LTC or become a limited partnership, ordinary partnership or sole trader
- Special rules will enable you to transition to another entity with no tax cost
We will keep you informed as more details are released but please feel free to contact us if you have any questions.
