QCs & LTCs - What you need to Know - Part 1

Happy New Year from us all at Walsh & Associates, and we hope that each and every one of you has a prosperous and rewarding 2011 year.

We are excited by the year ahead; there will be lots of changes for us as a practice and challenges to all our wider business networks. Of significance is the tax changes planned last year that take effect from the 1 April 2011.

The Demise of the LAQC Company

There are a number of changes in this legislation. Rather than try and discuss all the points in one newsletter, we will do what we did with GST last year and cover the main points in a series of newsletters with a question and answer evening to be held in early March 2011.

From the 1st April this year, LAQC (Loss Attributing Qualifying Companies) will no longer be able to attribute losses. In essence, they will become normal companies for tax purposes. So if there is no need to access losses, remembering that as from the 1 April 2011, depreciation on buildings can no longer be claimed, then by doing nothing, we automatically assume the default position and become that normal company as mentioned earlier.

Great, But I Still Want Access to my Losses

So if you believe that continued access to losses is needed, we have three options:
• A new Look - Through Company (LTC)
• A Partnership
• Sole Trader

We will cover aspects of a partnership and a sole trader later but in the interim we will focus our discussion on LTCs.

LTCs are a new creature of statute – Tax Statute. For Company Law purposes it differs from no other Company, in that it retains all the existing rules and benefits of being registered under Company Law. So Changing from a QC / LAQC to a LTC requires no new entities to be set up.

Okay, So if I have an LTC, What Does That Mean For Me?

The key element in the taxation of LTCs, is that the Company’s income, expenses, gains and losses are passed through to its shareholders in accordance with each owners effective interest in the Company. So what does effective interest mean?

In summary, it means Investments – Distribution + Income – Deductions – Disallowed Amount. Yes, we have switched to a bit of “accounting talk” here and you may need some help in making this decision, so please don’t hesitate to contact us. However, in essence, the formula is explained as follows:

Investments
• Equity, goods or assets introduced by the shareholder on behalf of the LTC eg a Holden Ute
• Loans made by the shareholder to the LTC, for the LTC to purchase an asset
• Share of the LTC guaranteed debt by the shareholder.

Distributions
This will include dividends made by the LTC to its shareholders.

Income/Deductions
Easier to understand as one, as together it represents Income less Deductions, which as we know equates back to Net Profit.

Disallowed Amounts
Any investment, you as a shareholder makes within 60 days of the LTC balance date, unless the investment is less than $10,000.

Okay, that’s enough to digest in the first week about LTCs. Next week we will talk about LTCs in relation to their rules, ownership requirements, classes of shares and the tax status as an LTC.