How LAQCs may morph into LTCs

Deloitte's Pippos sees rental investors switching from LAQCs to Look Through Companies (LTC); 'life goes on as in in the past'

15th Oct 10, 9:03pm by Bernard Hickey

<p> Deloitte Managing Tax Partner Thomas Pippos</p>

Property investors who had worried about losing their ability to claim tax lossses from their Loss Attributing Qualifying Companies against their personal incomes may be able to simply switch to new Look Through Companies (LTCs), says Deloitte Managing Tax Partner Thomas Pippos.

Pippos told Catherine Harris at The Dominion Post he suspected many investors would be attracted to the new LTCs, which were very similar to LAQCs "without the arbitrage or negative connotations."

It appeared LTCs would allow shareholders to own things through a company, but be taxed in their own name, he said.

"So a lot of property investors will just be able to tick the box and for them, life just carries on as it largely was in the past," he was reported as saying.

"It's not perfectly the same, but it's nowhere near as catastrophic as people thought it would be."

Finance Minister Peter Dunne announced earlier this week the introduction of new rules around LAQCs, following on from announcements in the May 20 budget about restricting the use of LAQCs by rental property investors.

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.

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12 Comments

by goldenfox | 15th Oct 10, 11:15pm 1287137732

Why not move to Limited Partnerships?

by We Are Stuffed | 16th Oct 10, 9:41am 1287175275

Why not just make it mandatory to own the property in your own name if you want to claim a tax deduction against your personal income for residential property.

This would not affect commercial property or ownership of shares in the likes of Kiwi income etc.

Only winners with these LAQC's, trusts and companies have been the blood sucking lawyers and accountants.

by Drooler | 16th Oct 10, 4:26pm 1287199569

"Only winners with these LAQC's, trusts and companies have been the blood sucking lawyers and accountants."

Yes.

They are right down there with rapists, child-molestors, and the pathetic slime who greedily pile into worthless FC's in order to bludge government-guaranteed taxpayer handouts.

Shoot 'em all.

by Billy | 16th Oct 10, 7:41pm 1287211304

I wonder if the government is unaware that by switching to LTC it's business as usual?

by muzza | 17th Oct 10, 1:17pm 1287274630

I know there must have been tax advantages having LACQ's but couldn't someone just buy a rental and deduct expenses fro his own earnings anyway??

So the main thing is that after this year, nobody , whether in a LACQ or whatever,will be able to claim depreciation of the building, which limits the amount of write-off on income . So who cares if someone has a LTC etc? Or, do I have this wrong??

by Snarlypuss | 17th Oct 10, 2:00pm 1287277250

Negative gearing ( off-setting individual PAYE tax against other expenses ) will go, eventually. Next Budget? The intention of off-setting expenses against a business (s) is to help productive enterprises 'do business'. That can be one, or several, streams of business in one company, but shouldn't be used to off-set individual wages-tax against non business related expenditure. So we will eventually go to "you can only offset your property expenses to the extent you have income from them; no more". Quarantine any excess expenses for future allocation, by all means. But don't allow PAYE to be offset against property losses.

by philthy | 18th Oct 10, 10:40pm 1287394844

Yeah as far as I see it, it stops people claiming losses on loans for more than their property is worth or the equity they had, which is a good thing.

But I think a lot of people wouldn't have been in that camp anyway.

People seem to forget that people other than just property owners were doing some dodgy things around the way they structure their companies, but you never seem to hear anyone complaining about that.

by We Are Stuffed | 17th Oct 10, 1:39pm 1287275962

As I understand it, the "big shot" property investors used to form these companies to minimise their tax.

Say Mr Big and Mrs big shot were on the different tax rates, they could put the property into a LAQC. Then they could use their tax losses in the name of the higher tax payer.

I think that was the gist.

As far as I can see the Big shit idiots would have spent more paying their expensive blood sucking accountants and lawyers to set up things than they ever saved.

They have to pay them more now to get them into some other form of ownership.

by I Am The Man | 17th Oct 10, 5:27pm 1287289661

They are bad, for sure. Almost as bad as syphilitic parasites who buy into crappy finance companies because they know they'll be able to greedily bludge a handout from taxpayers, courtesy of the government guarantee.

by We Are Stuffed | 18th Oct 10, 2:20pm 1287364831

Not sure if I thanked you for your contribution to my payout this wednesday.

Mrs WE ARE STUFFED also sends her thanks.

Pillock!

by bob | 18th Oct 10, 10:55am 1287352555

No - Mr and Mrs "big shot" property investors will be owners of companies which will still be able to offset any and all losses against other companies they own as they always have.

What is being discussed here is Mr and Mrs "small time" who are PAYE earners who currently use LAQC's to give them the same advantages as companies. This is to get rid of middle class property investors, not wealthy property investors.

by muzza | 17th Oct 10, 6:23pm 1287292989

Yes, govt is doing changes incrementally and will probably have ring-fencing provisions where expenses can only be related specifically against business income- but without depreciation of the building many rentals surely should not be negatively geared