Look Through Companies

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Look Through Companies - Re visited

Hamish Pryde • September 17, 2013

An LTC is transparent for income tax purposes in the sense that all of its income and expenses are considered to be derived or incurred directly by the shareholder and not by the company. In this sense, the company operates like a partnership, whereby the LTC will file a tax return for the purposes of calculating the shareholder's income, but will not be directly assessed for tax. This means that losses and profits will be deducted or taxed at the owner's marginal tax rate.

Remember, an LTC is tax fiction " an LTC retains its identity as a registered company and therefore is still governed by the Companies Act. In addition, an LTC is not transparent for other taxes such as GST or FBT.

In an LAQC, losses were attributed to shareholders in accordance with their shareholding interest in the company. Under the LTC rules, a shareholder will derive a loss, but will be restricted to offsetting that loss against other income if the shareholder does not have a sufficient ownership basis in the company. If the shareholder is unable to use their loss, or part of their loss, the loss is carried forward until they meet the eligibility requirements for utilising the loss. In some cases, determining a shareholder's ownership basis will give rise to a significant increase in compliance costs.

The other major differences between the two regimes are first that a shareholding change will not require the company to re-elect to be an LTC. Secondly, unlike a QC, the sale of shares in an LTC triggers a deemed disposal of the underlying assets of the company. Thirdly, a company's status as an LTC is only revoked by a revocation notice or by the company ceasing to meet the eligibility criteria (such as the number of shareholders). This could create some issues for the shareholders, in that whilst all shareholders must elect for the company to become an LTC, it only takes one shareholder to revoke that election.

A QC can declare and pay a shareholder salary, however an LTC cannot. For a salary to be paid to a working shareholder, an employment contract must be in place and regular payments made with PAYE deducted.

The LTC rules are detailed and careful consideration as always is required to determine what the best option for you business structure.

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More & More Paper Less

By Hamish Pryde • September 11, 2024

Paper is everywhere. We spend a lot of time and money moving paperwork around. But with today’s technology it is now possible to get rid of paper entirely. Digital documents are simpler, easier to store and send, more searchable and permanent. How long does it take to post a document to somebody via the ole stamp and envelope method, that is snail mail? It is more efficient and timelier to email the document. How many times do you go to print a document at home and find that your printer has run out of ink? Why do we still hold onto printing paper documents? Sometimes it’s just because that’s what we’ve always done and let’s face it change can be difficult at first. Paper alone is cheap. But when you start paying for printers, toner, servicing and maintenance, paper starts to look more expensive. Let alone the storage cost. Paper tax records for seven years can be quite a few boxes of paper. We have embraced some paperless technology as part of a modern business practice. This includes digital signatures, digital collaboration, paperless minutes of business improvement and coaching meetings, electronic work papers and my new digital notebook which I am enjoying. We send questionnaires via email to you to gather vital information to enable us to prepare your annual financial statements. This is a PDF document. Instead of printing the questionnaires you could save the document down into a folder of your choice then edit the PDF document and return to us. How do you edit a PDF document you ask? Once you have opened the document the Adobe online editor lets you do some things for free. The online editor works in any web browser and lets you add text, sticky notes and highlights. Click on the fill & sign button to the right of the document, then in the top toolbar click Iab text button. You can add text directly on the PDF document. Have a try next time you have a PDF document open. Xero and Farm Focus users can attach invoices directly to the transaction loaded into Xero. Then if you are looking at the rates expense in the profit and loss account or farm working account, you can drill down into the rates code and see the transactions. Then attached to each transaction is the rates invoice if you use this great functionality. All invoices can now be stored in the cloud. So why paperless? Productivity - electronic documents are instantly and simultaneously available to everyone who needs them. Reduce waiting times with less risk of loss or damage. Cost savings - you will save money on printing, postage and associated costs. You could pay less rent because you won’t need all that space for your files. Security - electronic documents are more secure than printed ones. Digital records can be password protected and rendered unreadable through encryption. Printed documents are only as secure as their proximity to a copy machine. Reduced Clutter - paperwork on desks and shelves are not only untidy it’s inefficient too. The organisation of digital files is simpler and your office will look much neater. That will help you clear your mind to focus on your business. Environmentally friendly - less printing means fewer trees cut down for pulp and less energy used to make and transport paper. Disaster recovery - if there is a fire or flood, recovery from the backup is much easier with digital storage them with paper. There are great help articles available in Xero or Farm Focus if you are not attaching invoices to payments already. To find out how click on the links below: If you would like to explore ways you can go paperless we can help.