LAQC’s will be a “dead man walking”

Finance Minister Bill English today announced in the Budget that qualifying companies (QCs) and loss attributing qualifying companies (LAQCs) will become flow-through entities for tax purposes - similar to limited partnerships.

The LAQC and QC rules will be tightened from income years starting on or after 1 April 2011 to prevent people choosing to have losses deducted at their marginal personal tax rate but profits taxed at the lower company tax rate.

Shaw says the government has taken the right principled approach but there's a lot of difficulty in making it work.

He believes property investors will not want to use LAQC's going forward and that they will use straight forward partnership structures if they expect to have losses.

If they expect to make a profit he believes investors will use corporate structures and pay tax at the lower rate of 28%.

"LAQC's will be a dead man walking, they'll disappear as the government will find them too difficult and will end up getting rid of LAQC's altogether - that will be a real concern."