LTC for the Rental Property InvestorIf you own one or more rental properties, you could save money by setting up an LTC. The LTC structure allows you to transfer profits and losses from your investment properties to your personal income. So, by off-setting any losses you make through your rental property, against the income you earn from other sources, you can reduce the rate of tax you pay, and save more money.
What is an LTC or Look-Through Company?A Look-Through Company is the same as the traditional limited liability company, established in accordance with the New Zealand Companies Act of 1993; However, the laws differ regarding the taxation of the company’s income. An LTC is unlike a typical company in that the income and expenditure of the company are expressly in the hands of the shareholders. In fiscal terms, this creates a transparent mechanism that is identical to the New Zealand limited partnership. In notable contrast to the former rules regarding LAQCs, LTC shareholders have an obligation to pay taxes on the profit of the company personally, as well as being able to claim losses generated by the company against their other income for tax purposes.
- An LTC is a legal entity under the usual rules of management and operation of companies of limited liability.
- In the realm of taxation, LTC is more transparent and the owner(s) of an LTC will be considered the owner(s) of the company’s assets in order to calculate income tax.
- Income, expenses, tax credits, deductions, gains and losses of the company are transferred to its owners in proportion to their share in the company.
- A company which resides (tax-wise) in New Zealand; this residency is determined by the location of the company itself and not its shareholders.
- The company’s shares can only belong to individuals or managers of a trust, or other Look-through company, to be shares of the same class and to give equal rights to all shareholders.
- The number of shareholders of such company shall not exceed five shareholders.