Fact sheet - LAQC and QC changes

What is changing?

 

• Qualifying companies (QCs) and loss attributing qualifying companies (LAQCs) will become flow-through entities for tax purposes - similar to limited partnerships.
• Inland Revenue and Treasury are releasing an issues paper today on the implementation of the new rules.
• Changes will take effect from income years starting on or after 1 April 2011. Legislation implementing these changes will be enacted later this year.

Why?

 

• Under the current rules, people can choose to deduct losses at their marginal tax rate - as high as 38 per cent - but have their profits taxed at the lower company rate (currently 30 per cent).
• Changing the rules will improve the integrity and fairness of the tax system.

Key facts

 

• The changes will affect only shareholders of QCs and LAQCs.
• In recent years, LAQCs have become more popular and they are a common structure used by property investors. Between 2003 and 2007 - during the housing boom - the number of active LAQCs doubled and the average tax loss claimed by investors increased by almost 50 per cent.
• The changes are expected to generate additional revenue of $70 million in 2011/12, falling to $55 million a year by 2013/14.

More information


 

• The issues paper on the implementation of the changes to the QC and LAQC rules will be available on Inland Revenue's Policy Advice Division website at www.taxpolicy.ird.govt.nz