What is Look-Through Company (LTC)?
A Look-Through Company (LTC) is a special NZ company structure that elects tax transparency: the company's income, expenses, tax credits and losses flow through directly to shareholders' personal tax returns. The company itself pays no income tax. Limited to 5 look-through counted owners.
Current Rate (1 April to 31 March)
No company-level tax. Owners taxed at their personal rates.
Example
Two 50:50 shareholders form an LTC to hold a rental property generating NZD 30,000 net income. Each includes NZD 15,000 in their personal return. If the property made a NZD 20,000 loss, each could potentially deduct NZD 10,000 against other income, subject to the owner's basis loss limitation.
How Look-Through Company (LTC) works in New Zealand
The LTC regime was introduced in 2011, replacing the qualifying company (QC) regime. It was designed primarily for small family businesses and rental property holding companies where owners want the limited liability of a company but the pass-through tax treatment of a partnership.
**Eligibility Requirements** To elect LTC status, a company must: have 5 or fewer look-through counted owners (LTCOs); all owners must be natural persons, certain qualifying trusts, or other LTCs; no more than 25% of the total ownership interest can be held by persons who are not New Zealand residents; the company must not be a trustee; and it must not be listed on a recognised exchange.
A look-through counted owner is counted separately for each indirect interest. If an individual holds a 50% interest through a trust, they count as one LTCO and the trust as another, so this arrangement could use two of the five allowed owners.
**How Income and Expenses Flow Through** Each owner includes their proportionate share of the LTC's income and expenses in their personal income tax return. Unlike a partnership, the LTC remains a separate legal entity for all non-tax purposes (contracts, ownership, liability). The LTC files an IR7L return to notify IRD of income and loss attribution.
**Owner's Basis Loss Limitation** Losses from an LTC are ring-fenced at the owner level by the owner's basis calculation. An owner's basis starts at the cost of their shares plus loans made to the company, adjusted each year for income allocated and losses claimed. If an owner has claimed losses that reduce their basis to zero, further losses are suspended and carried forward until the basis is restored (for example, by injecting more equity or by the company generating income).
**Exiting LTC Status** When a company ceases to be an LTC (by election, by exceeding the five-owner limit, or by failing an eligibility test), a deemed disposal and reacquisition of the company's assets occurs at market value. This can trigger income or depreciation recovery on assets that have been depreciated below market value. Careful planning is needed before deregistering an LTC.
**Common Uses** The LTC structure is popular for: rental property holding (allowing loss flow-through to offset personal income, subject to loss ring-fencing rules introduced in 2019 for residential property); small family trading businesses; and professional practice companies where the owners wish to have losses offset other personal income.
**Interaction with Residential Property Loss Ring-Fencing** Since 1 April 2019, residential property losses (from a portfolio of 5 or fewer properties) are ring-fenced and can only be offset against other residential property income, not against other income. This significantly reduced the attractiveness of LTC structures for residential rental property, though commercial property LTCs are unaffected.
Related terms
New Zealand companies pay a flat 28% corporate income tax rate on net taxable income. Maori authorities pay 17.5%. The imputation system prevents double taxation by attaching tax credits to dividends paid to shareholders.
Imputation credits represent the company tax already paid on profits before they are distributed as dividends. Shareholders receive the credit and offset it against their personal tax, preventing the same income from being taxed at both company and personal level.
The IR4 is the annual income tax return filed by New Zealand companies. It reconciles accounting profit to taxable income by adjusting for non-deductible items and IRD depreciation differences. Due 7 July for standard 31 March balance date companies, or 31 March following year via a tax agent.
New Zealand does not have a general capital gains tax, but the bright-line test taxes gains on residential property sold within 2 years of acquisition as ordinary income. RLWT (5% to 33% depending on gain) must be withheld by the purchaser when the vendor is an offshore person.
Confused by New Zealand accounting jargon?
AccountsOS explains New Zealand terms in plain English and applies the right rules to your books automatically.
Try Free