Column: LAQC deadline looming

The first deadline for shareholders in Loss Attributing Qualifying Companies (LAQC) is  approaching, with tax law changes kicking in from April 1.
From  then, LAQCs will essentially cease to exist and shareholders should have reviewed their options and be taking action to put themselves in the best tax position.
Ideally, this needs to be done before April 1 - particularly if you are changing shareholders. But other actions can be taken up to September 30 and will have retroactive effect from April 1.
Most LAQCs were set up so shareholders could claim their share of the LAQC's tax loss in their personal tax returns. If these losses are going to carry on, bearing in mind no depreciation is claimable on buildings from April 1 so losses may be lower, the shareholders will not be able to claim these losses unless they take action.
If they do nothing, the company will file tax returns and the losses will carry forward, accumulating in the company's own tax return. Unless the company has other sources of income, shareholders will not enjoy any tax savings benefit.
Shareholders have a few choices and the "right" choice depends on the  circumstances of the LAQC and  shareholder.
The look-through company
The easiest and cheapest option is for shareholders to elect for the LAQC to become a look-through company (LTC).
New tax laws,  applying from April 1, allow a company to become an LTC and for shareholders to continue claiming tax losses in their personal returns.  Ensure you meet the requirements to be a LTC and there are no problems with shareholders claiming the tax losses.
If the LAQC is likely to become profitable, you may not want to change it into a LTC. Unlike a LAQC, profits and losses are taxed to the shareholders.
It may be best to change the shareholding before it becomes a LTC, but this is best done before April 1.
The LTC rules, unlike the LAQC rules, contain a loss limitation mechanism, preventing each shareholder claiming losses greater than the financial stake they have invested or at risk in the LTC.
Some of the LAQC clients we've reviewed will have a problem with this  rule and we are considering options to ensure it does not limit losses they claim.
Other options
Shareholders can alternatively opt to transfer assets and liabilities of the LAQC to sole tradership, a partnership, or a limited partnership.
Special tax rules allow this transition to occur without any income tax or GST consequence, provided it happens in the 2012 or 2013 income tax years. This is likely to entail more cost, as the new entity will need to be established and there may be legal costs in the transfer  to the new owner.  Depending on the circumstances, this option may be preferable to becoming a LTC. These changes will affect all shareholders in LAQC's and you should be reviewing
your options and making decisions now. The best course of action will  depend on your specific circumstances and professional advice should be sought if necessary.
 
- Stephen Graham is a partner at BDO Rotorua chartered accounting and advisory firm.