WHAT IS AN LAQC?

One of the possibilities as an  ownership vehicle of  investment property is a Loss Attributing Qualifying Company (LAQC). This may or not be ideal depending on circumstances, and can provide flexibility in the ownership structure.   An LAQC is simply a standard limited liability company, which takes on a tax election, to give it Loss Attributing and Qualifying Company status with the Inland Revenue Department.

This regime is only available to companies with fewer than five shareholders. It was introduced to try to make the taxing of small family companies similar to that of partnerships. It has provided an excellent flexible structure for property investors.

Where there is a tax loss, as is the case in many negatively geared situations, the tax loss can be attributed back to the shareholders in the company in proportion to their shareholding in the company.   Thus planning prior to the incorporation of the company is important, as there may be an advantage in the highest income earner holding a major shareholding in the LAQC to maximise the benefits of any tax losses. 

An LAQC offers the possibility to restructure the ownership of the company  without necessarily having to incur recovery of depreciation on sale of the actual property itself .

Capital profits made by the company on sale of property can be distributed to shareholders tax-free, by paying an exempt dividend from the capital gain.

It should be remembered that assets and liabilities of the LAQC are attached to the shareholders and shareholders accept personal liability of any liabilities that the LAQC may have e.g. loans, income tax liabilities.