LAQC losses tripled to NZ$2.3 billion between 2003 and 2008
8th Sep 09, 8:57am
Figures from the Inland Revenue Department (IRD) show the value of tax losses claimed by LAQCs (Loss Attributing Qualifying Companies) in 2008 was NZ$2.258 billion, more than triple the losses claimed before the housing boom began in 2003. Many rental property investors have used LAQCs to structure their investments so as to make tax losses they can claim against their regular incomes, which has been blamed as a factor pumping up property prices. Some have even put their own homes in their LAQCs, which the IRD is cracking down on. An IRD spokeswoman told interest.co.nz there were at least 40,000 LAQC's registered with the IRD, where the stated LAQC activity included, but may not be exclusive to, property. Just under 130,000 LAQCs filed returns for the year. The value of losses claimed was up from NZ$1.822 billion in 2007 and NZ$709.8 million in 2003. The area of the tax advantages for property investors is one focus for discussion by the Government's Tax Working Group. It will meet again on September 16 to discuss 'base broadening options'. Some rental property investors have used LAQCs and family trusts to offset tax losses from rental properties against their regular salaries and wages, helping to reduce their personal tax bills and fuel the property boom from 2003 to 2008. The average LAQC loss claimed in 2008 was NZ$17,383. This was up from NZ$15,441 in 2007. The IRD was given NZ$14.6 million over three years in the 2007 budget to strengthen its focus on property transactions, with property tax compliance being identified as a specific risk area for the Department. "In November 2007, Inland Revenue issued a Revenue Alert to tax agents warning about the practice in which shareholders of a LAQC, involved in residential rental, live in the home owned by the LAQC," the IRD spokeswoman said. "We have followed this up by undertaking an awareness campaign since about May 2008, which involved writing or phoning individual shareholders in LAQCs that have rental losses, to remind them such arrangements are considered to be tax avoidance," she said. "We contacted just under 38, 000 entities directly with information on this issue. We have identified a smaller number of these that are of particular interest and are working through these to evaluate their specific circumstances." "We have also held approximately 2,500 advisory meetings and seminars that have also included information on private residences held within an LAQC." LAQCs can have a range of business activities that might include property, it can be difficult to determine exactly what proportion of these losses is attributable to property, the IRD said.