Changes to QCs and LAQCs
Posted: 28th September 2010
It is proposed that QCs and LAQCs will become flow-through
entities (similar to limited partnerships). Income will be taxed
and losses deducted at the shareholder's marginal tax rate.
The changes (when enacted) will take effect from income
years starting on or after 1 April 2011.
- The amount of losses that can be utilised by the
shareholder is limited to the amount the shareholder has invested
in the LAQC. The shareholders' investment would include the
initial equity invested , along with undistributed earnings of
the LAQC and the share of any debt guaranteed by the
shareholder. Currently, the LAQC shareholders can deduct
losses in excess of their equity in the LAQC.
- With the removal of depreciation on residential properties,
there is likely to be more income-generating years relative to loss
years. You may need to reconsider whether an LAQC is still
the appropriate entity to hold such an investment.
- You may need to consider revoking the QC election given that
the company tax rate is reducing to 28%.
- Post 1 April 2011, a change in shareholding or an LAQC
revocation will mean a deemed disposal and acquisition at market
value for any depreciable property. This will prevent
companies using shareholders on high marginal tax rates while
making losses and changing shareholding to use shareholders with
low marginal tax rates when they become profitable, as it will
trigger depreciation recovered.
- A QC cannot maintain an imputation credit account from 1 April
2011.
- These changes will have a flow-on effect to the shareholders'
provisional tax calculations.
Source: Knowledge Shop