A Trans-Tasman Tangle

Question from Sundip updated on 22nd February 2011:

3 years ago I moved to Australia from nz, all my 4 properties in nz were under a LAQC structure. Spoke to my accountant and now it’s not a LAQC company anymore because I was the only director of the company and now residing in Australia and my accountant has made it as a normal company. Now... my situation has changed... I have to move back to nz due to family commitments. These are my questions... Can I get my LAQC status back? What happens to the loses in the LAQC company when it loses its LAQC status, does it still sit in the new company structure? My accountant mentioned that future loses that the company make now will sit with the company and that can be offset against any future profits that the company make is that ? What is the best move to do as in how to structure my company again when I move back to nz? Thanks for the advice guys! Love your work!!

Our expert Mark Withers responded:

The question of whether LAQC status is lost will depend on whether the company becomes tax resident in another country and ceases to be a tax resident in NZ. This would normally require the shareholder directors to move to a country with which we have a double tax agreement under which the corporate residence tie breaker test results in the company ceasing to be tax resident in NZ. A NZ incorporated company would become tax resident in Australia if it carries on business in Australia and its central management and control is from Australia or the voting power is controlled by persons resident in Australia.

In the case of a LAQC company which might own a few NZ based rental properties it is debatable as to whether that would amount to the carrying on of a business in Australia. If not, the company would remain NZ resident and maintain its LAQC status. If the LAQC status is lost the losses must be carried forward in the company and can't be attributed to shareholders. The new QC legislation about to be released is also potentially going to contain provisions that will trigger deemed disposals and depreciation recoveries if QC status is lost.

If you re apply for LAQC status it can only take effect from the first day of the next income year and all the losses you have accumulated in the company are wiped on entry back into the QC regime. So you are a bit dammed if you do and dammed if you don't. In any event I suggest you wait until the release of the new legislation that governs the way QC's will be taxed in future and review the residency issues with you accountant again, perhaps it is possible to argue that the LAQC status was never actually lost in the first place.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.


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