A Trans-Tasman Tangle

Our Experts Answer:

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.