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Revenue Minister Announces Company Rule Changes

Contributor:
Fuseworks Media
Fuseworks Media
Peter Dunne
Peter Dunne

Wellington, Oct 11 NZPA - The Government will introduce new rules preventing loss attributing qualifying companies (LAQCs) from passing losses on to their shareholders, Revenue Minister Peter Dunne says.

The move follows public consultation on proposals for reforms of the tax rules announced in the budget. Mr Dunne said today they would also provide flow-through income tax treatment for closely held companies which choose to use them.

Business income and losses will be able to be passed to shareholders who will pay any tax due, but the rules will allow a business to still have the benefits of a company, such as limited liability.

"In response to feedback from small business, the Government has also decided to review the tax rules for dividends, with a view to simplifying them for closely held companies," Mr Dunne said.

"Until this review is undertaken, existing qualifying companies and LAQCs can continue to use the current qualifying company (QC) rules, but without the ability to attribute losses."

Draft legislation will be available later this week.

New Zealand Institute of Chartered Accountants (NZICA) tax director Craig Macalister said the change would "see the end of LAQCs as we know them".

LAQCs will be treated as full flow-through entities from April 1, 2011, with the option to transfer at no tax cost to a QC or limited partnership.

It will force some people with LAQCs to reconsider whether they want to continue with the LAQC structure or move to a QC or limited partnership model.

Existing QC rules are remaining pending a review of company dividend rules.

A proposal to move QCs to a full flow-through model was baseless and it was pleasing to see the Government had taken this view on board.

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