LAQCs and foreign companies

Our Experts Answer:

I'm going to assume here that the rental property is in the LAQC and you are non-resident for tax purposes. To remain a Qualifying company a company can't be a "foriegn company". If the directors and shareholders leave NZ this can result in the company being treated as a foriegn company. This in turn can cause the company to fall out of the QC regime from the beginning of the year in which the shareholders left NZ.

A foriegn company is defined as a company that is not resident in NZ, or one that is resident in NZ but is treated as not being resident in NZ for the purposes of the double tax agreement. A DTA may, for example, deem the company to be resident in the country where its "place of effective management is situated". This refers to the management of the company rather than the management of the property.

For this reason we would generally recommend that a NZ based director be appointed to manage the company in your absence prior to your departure. This may reduce the risk of the company losing it's LAQC status under these provisions. If this is not possible the company should have perhaps been wound up prior to departure, particulaly if losses are being generated. The effect of the loss of QC status is that losses can no longer be attributed to shareholders and any dividends paid from capital gains made by the company will be taxable to the shareholders.

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