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LTC loss limitation rule explained – ‘Owner’s shareholding’ versus ‘owner’s effective interest’

From 1 April 2011 new tax legislation introduces the Look-Through Company (LTC). This is the result of tax legislation passed in December 2010. From 1 April 2011, LAQCs, as we know them, will no longer be! This post provides a brief overview of the new entity and attempts to explain the new LTC loss limitation rule.

An LTC is a company and a tax entity, although for income tax purposes, the entity is not a taxpayer. As a company, the LTC will provide limited liability. To be able to enter the LTC regime a company must be tax resident in New Zealand and have a single class of shares. Also, the LTC may only have shareholders who are natural persons, corporate trustees, or another LTC, and all shareholders must elect for the company to be an LTC.

This new tax entity has been so named because, for income tax purposes, the entity is “looked-through”. The owners of a LTC are regarded as holding the LTC’s assets directly, and carrying on the activities of the LTC personally. The income and expenses of the LTC are shared according to the owner’s effective interest in the LTC. This concept focuses on the effective amount of equity that an owner has in the company, not the shareholding percentages.

Historically, LAQCs have been structured to ensure that rental losses flow through to the highest earning shareholder. For example, the shareholders of many LAQCs are 1% Mum and 99% Dad. Going forward, losses are allocated in proportion to an owner’s effective interest, not necessarily the owner’s shareholding. If owners maintain the 1:99 shareholding split, but their effective interest sits at 50:50, the 99% shareholder will not be able to access 99% of the deductions (or losses).

For example, Sarah and John Smith have a rental property in an LAQC which generates losses each year due to an interest-only loan over the property. Their respective shareholdings are 1% and 99%. As part of the loan ($10,000) is guaranteed equally by both, their effective interest in the company is split 50:50. During the 2012 income year, Sarah and John intend to elect that their rental company become a LTC for tax purposes.

They prepare an indicative budget for you as follows:-
Rental income $15,000
Expenditure $22,000
Loss $7,000

The shareholding percentage in the first instance dictates the proportion of income, deductions and credits which are allocated to each owner. John, the 99% shareholder would be allocated 99% of the income and expenditure.

However, the loss limitation rule then applies to determine how much of the expenditure allocated to a shareholder can be claimed in that year – which is based on each owner’s effective interest rather than the shareholding percentage.

The effect of this limitation is as follows:-

43 Responses

Dee on March 21, 2011 at 2:49 pm

Where does the ‘Restricted & carried forward’ calculation come from? Sorry, new to this – please explain.

Daniel Hunt on March 22, 2011 at 7:06 am

Hi Dee,

Thanks for your question.

The owners basis calculation is dependent on the amount of the investment in the LTC, attributions of income and deductions, and any money that has been drawn out of the LTC.

The owners basis formula is: Investments – distributions + income – deductions – disallowed amounts.

What are “Investments”?
Thes include things such as the MV of shares at purchase, current account / loan accounts / advances and “Secured amounts”

What are “Distributions”?
Includes the market value of distributions from LTC to the owner including loans from LTC to owner.

What constitutes income/deductions?
Amounts attributed to shareholder(s) and realised capital gains/losses.

What are “Disallowed Amounts”?
This is the amount of “investments” made within 60 days after year end if those investments are distributed or reduced within 60 days after balance date.

I hope you have found the above comments useful. Please contact me if you have any further queries.

Daniel

Kelvin on March 27, 2011 at 7:24 pm

Hi Daniel
How does the loss limitation rule apply for LTCs with rental companies where the mortgages are secured by the shareholders trust rather than the shareholders themselves. i.e. where the family home is in a trust but has been used to secure the loans for the rental properties. Does this mean the shareholders investment is zero? or can they still claim the investment based on their trust?
Interested in your thoughts
Cheers
Kelvin

Daniel Hunt on March 29, 2011 at 7:20 am

Hi Kelvin,

The technical reasoning behind this answer is somewhat confusing. Essentially, unless someone agrees otherwise, we are of the view that it boils down who owns the property that the mortgage is secured against.

If the property is in a trust – the trust may not have total ownership until the property is totally gifted to the trust. In saying this, with gift duty being abolished – this will no longer be the case.

Maybe it is simpler to view it this way: Let’s say a bank wants to recall its mortgage due to non-payment. The rental property does not cover the mortgage so the balance has to come from the other property in the trust. The trust may then have to sell the other property and pay back the loan.

So who has secured the loan? At the end of the day – it’s still the shareholder.

I hope you have found my comments useful. Please contact me if you have any further queries.

Kind regards, Daniel

Elizabeth on March 29, 2011 at 7:35 am

Hi everyone,

Inland Revenue has just released a useful guide on Look Through Companies.

This can be found at: http://www.ird.govt.nz/taxagents/forms-guides/number/forms-800-899/ir879-look-thru-companies.html

Kind regards, Elizabeth.

Wei Hu on April 4, 2011 at 3:03 pm

Hi Dan

Regarding to the explaination of “Disallowed Amounts”, is this “Investment” made within 60 days BEFORE or AFTER year end (31/03)?

Thanks, Wei

Wei Hu on April 4, 2011 at 4:31 pm

Hi Dan

When we count the ownership of LTC, we treat related shareholders, such as husband and wife, as one owner. However, when we calculate income, expenses, losses and etc, do we still treat husband and wife as one shareholder or treat them seperately? Many thanks.

Wei

Daniel Hunt on April 7, 2011 at 8:20 am

Hi Wei,
To clarify, this is the amount of “investments” made within 60 days of year end if those investments are distributed or reduced within 60 days after balance date.
I hope this helps.
Daniel

Daniel Hunt on April 7, 2011 at 8:23 am

Hi Wei,
For the purpose of the loss limitation rule, my understanding is that you need to determine this on a shareholder by shareholder basis (ie. seperately).
Daniel

Sarah on April 22, 2011 at 11:14 pm

Hi Daniel,

Can you clarify for me the tax cosequence of an LTC (for simplicity lets say 1 shareholder) that has $40K income and $60K deductions, creating a loss of $20K but owners basis is only 35K due to an overdrawn current account. Does a tax liabilty then arise for the shareholder as a redult of a $5K profit (being $40k income less $35K allowable deductions?

Hunt Daniel on April 27, 2011 at 7:33 am

Hi Sarah,

Thanks for your comment.

This is a tricky question but as always we have an answer.

I am presuming that the LTC in your example is a trading company and not a rental. If this is the case, the owner’s basis is a lot more trickier to calculate. As you are aware, expenses can only be deducted to the maximum of an owner’s basis.

In your example above – you have $40k in Income, $60k in expenses which generates an effective loss of $20k.

The owner’s basis will limit the loss to what the company owes to the shareholder (ie. loans personally guaranteed by the shareholder, etc). In your particular case however, an overdrawn current account is what the shareholder owes to the company and may not therefore form part of the owner’s basis.

I have discussed (and debated) this issue at length with my colleagues and we have come to the conclusion that maybe this would mean a positive current account in which case the owner’s basis would limit the expenses.

From a practical perspective, it would therefore seem that the owner’s basis would limit the expenses to $35k with the balance of expenses ($25k) being carried forward to the following income year. That is, $40k less $35k equals $5k profit. Accordingly, you will be unable to utilise expenses to the maximum and a tax liability now exists.

If losses cannot be utilized to the maximum in a trading LTC (not a rental LTC), the LTC may not be the best option for trading going forward. If this is the case, it may be best to opt out of the LTC regime and become an ordinary company. Rentals in a LTC with personal guaranteed mortgages don’t have any real problems and continue more or less like LAQC’s.

I trust you have found our comments useful. Please contact me directly if you have any further queries.

Kind regards, Daniel

Kirti on May 16, 2011 at 9:31 pm

Hi, I am new to this,,please help he here. I have two rentals on 100% loan – intrest only. Both retal property 100% loans are gareteed by equity on our property that me and my wife live in. Existing LAQC is set up for me 99 % shares and my wife 1 % share. If we make $10,000 loss this year, How it could be shared between me and my wife under LTC ? What would be the best set for us ?

Daniel Hunt on May 18, 2011 at 1:39 pm

Hi Kirti,

Please see the example in the article above. It would appear that the loss limitation rule would apply to limit the expenditure to which can be claimed each year as this rule considers the owner’s effective interest (ie. 50/50%) rather than the shareholding percentage.

Further to your telephone call earlier today, you are considering converting to a partnership structure which would solve this problem.

Daniel

Chris on July 10, 2011 at 5:04 pm

Hi Daniel My wife and I have 50-50 share in our LAQC (rentals) which we have been advised to move to a LTC. We invested our own finances to get it up an running and the company has taken loans out that we had to guarantee for. In relation to this and that we still have money sitting in the company are we best to move to a LTC (with the LLR) or move to a general parnership where the LLR does not apply. Chris

Anne on July 28, 2011 at 12:28 am

Hi Daniel

My husband and I has a LAQC with one rental property. Our shareholding is 90/10 for him and me. Based on our 2011 LAQC reports, our property is around $300K and our bank loan is around $250K. The loan is personally guaranteed by both of us. We have also $65K credit sitting in our current account. Our annual rental income is around $16K. Expenses including interest and excluding depreciation of buildings is about $30K. Net loss is about $14K.

I have the following questions:
1. Would LTC be our best option to choose? Our owner’s basis would be $250K + $65K + $16K = $331K for ye 31/3/2012, or 10 times of the annual expenses. In other words, we can at least claim 100% losses for the next 10 years.
2. Do we still need to keep our worksheet every year like how you demonstrated for calculating and recording our owner’s basis and deductions availability even we already know our owner’s basis can cover for so many years? Would those Loss/Deduction limitation rules simply have no effect or do not apply to 100% personal guaranteed loans?
3. Please clarify that for our calculation, we should use 50/50 for the bank loan, for our current account, and for our future additional funds in or out. What other factors determine 50/50 but not 60/40? On the other hand, we should use 90/10 for our rental income and expenses. Am I correct?
4. In the big formula, income and deductions are not in the same year. Deductions are taken into the formula one year later than income. Is that correct?
5. If we change from LAQC to LTC for 2012, should the property be transferred at 2011 book value or at market value? If market, our asset value will go up. Is that considered a capital gain which is then transferred into the current account?
6. If we however don’t choose LTC but a simple partnership, does it mean we can only go 50/50 for the net loss of $14K every year?
7. LTC is a limited liability company. However, if we as shareholders 100% guarantee the loans, does it mean that limited liability does not apply? Again, for a simple rental investment, do we need to worry about whether the liability is limited or not?

We highly appreciate your advice and comments. Many thanks

Anne

Daniel on August 3, 2011 at 11:56 am

Hi Anne,

I have sent you a response via email.

Thanks, Daniel

Lynda on August 29, 2011 at 8:44 pm

My husband and I own a LAQC since 2004 which we are looking at putting on the market in the next few months. (mortgaged at $250k, interest only recent RV $300k) At present he owns 100% shares and I am a director. Despite extensive reading I still remain unclear as to our best options, a LTC appears the option to take but what does this mean when we sell the property in the near future.
Many Thanks
Lynda

Sandra on August 31, 2011 at 5:29 pm

Very nice info. Was looking forward to the reply you had for Anne, but it is sent to her by email. Any possibility that I can be sent that reply, as it would clarify some issues.
Also what happens after 10 years of a property in LTC, if we sell?
What is the date by which we can elect for LTC without any charges? Can we just do it online?
Thanks
Sandra

Paul on September 26, 2011 at 12:33 pm

We find the write up, comments, questions and answers very useful.
Based on below we have some queries:
LAQC since 2005. Two directors/owners. My share 99% wife’s share 1%. Wife has only bank interest income, AECT (Auckland energy consumer’s trust) dividend income and no other income. No other owners or directors.
Own two properties under LAQC. One since inception, the other added in 2008.
Bank Loan of LAQC now LTC guaranteed by our mortgage free home. The guarantee is provided by both of us (directors/owners)
Since 2005 losses were made up by director’s loans to LAQC. This was done from our joint account.
We are aware; as both director’s have guaranteed the bank loan to LAQC, to calculate the owner’s basis of each owner, the council valuation of our residential property is to be split 50% each. The bank loan to LAQC now LTC is higher than the value of the our residential property.
YE 03/2010 the Loans from shareholders to LAQC amounts to just over 300K and will increase every year to cover the losses.
We have elected to become an LTC as of 2011.
Losses are about $35K at current interest rates.
We are of the opinion that each director/owner has the flexibility to give loan to the LTC in different percentages and that could be reflected in the “Loans from shareholders”.
e.g.
Loan from owner 1, $x. (99% of loss)
Loan from owner 2, $y. (1% of loss)
We propose to hold separate individual accounts and loan from each owner would be transferred to the LTC account. We have not filed our 03/2011 return yet.
Based on above:
Can we split the loan from shareholders of about 300K 99%, 1% to increase the owner’s basis of the 99% owner.
Your clarification would be most appreciated.
Thanks,
Paul

Viny on November 11, 2011 at 10:11 am

Just wondering if we can change shareholding if we are moving to LTC from LAQC or whether this will seen as avoidance? If we can, how do we go about doing it?

Daniel Hunt on November 13, 2011 at 4:38 pm

It depends on the reason for the shareholding change. What is your reason for changing the shareholding also?

You can simply change the shareholding via the companies office website.

viny on April 3, 2012 at 10:39 am

spouse wants 50/50 shareholding. A friend said it is not as simple as just going into website and changing shareholding, the shares have to be valued and correct paperwork needs to be done, she may need to pay me for the extra shares etc This seems too complicated. If this is the case what journals and paperwork do we have to do?

steve on April 4, 2012 at 3:07 pm

In the 2012 IR7 Guide , IRD give a loss limitation example
that turns a LTC loss into possitive assessable income amount to the owners, as a result of applying the “loss” limitation rule not to the loss, but to the deductions amount only.
I can’t get my head around it
refer page 25

andy on April 12, 2012 at 9:39 am

With a LTC, say you make a loss of $100,000 in a calender year , how much of this loss can you claim back against your own personal income if you are a 33% tax payer? The LTC is a single rental property and each of the two of us are 50/50 owners but one of us is on a years maternity leave.

Aaron on April 23, 2012 at 7:31 am

Hi Daniel, very interesting area this. im currently doing a masters and have been doing similar research. If you dont mind, there are a few questions that it would be great to hear your views on:

Matriomonial property
for the purposes of counting owners basis, this seems to throw up a few problems. Is the value of the recourse property split 50-50 for a husband and wife who have given an equal guarantee? Even though the shareholding may be say 90/10.

Joint bank accounts
when a husband and wife pay expenses from a joint bank account, does this mean their owners basis increases equally, or is it then apportioned as per the shareholding?

thanks daniel! always enjoy your writings on here.

Jerry on April 30, 2012 at 5:19 pm

I have a couple of quetsion on the following LTC with rental activity:

Market value of rental proerty at purchaes: $462,000
Book value as at 01/04/2011: $420,000
Loan amount as at 01/04/2011: $450,000
Total amount (loan+overdraft) for LTC to access (shareholders guaranteed): $600,000
rental income: $25,000
Expenses: $35,000

(1) How do we calculate owners’s basis?
(2) My wife & I both are guarantors of the laon/overdraft, does this mean each of us only has an effective interest of 50%, irrespective of our shareholding?
(3) In case we’re disadvantaged by the ‘loss-limitation rules’, can we elect to change from LTC to partnership, where our shareholding effectively reflects our effective interest?

Your explaination by this exampl,e is appreciated thank you.

Jerry

John on May 24, 2012 at 4:11 pm

Hi There

We are migrating to Oz in July and have a LTC with 1 pty. The mortgage I have with the pty is to my parents whom the bank(ANZ) accidently payed off my mortgage on the pty as my parents were guarrantors. They were only limited guarrantors to the tune of 60k but because we refinanced with another lender to get a couple more ptys, they (the other lender) payed $40k to take the security of my LTC from ANZ.

So since ANZ had no security over my property even though I still had a 257k loan with them, they (ANZ) took it from my folks who had to sell the family home. Was that even possible???

Anyways my question was, since I am moving to Oz and cannot be a shareholder in the LTC, is there any way I can just do a handover of the pty to my parents thus clearing my 257k debt to them.

Anyone with any ideas would be appreciated.

Dita on May 29, 2012 at 11:50 am

Hello Daniel, I am confused by the owners basis calculation, when it comes to this you say current account credit balances fall into investments, however what do you mean by current account credit balance? The opening, closing or change during the year? Thanks

shadi on June 13, 2012 at 10:29 am

Hi, if there are no income under the company and there are only expenses occurd , can i still change my company to LTC and claim loss against my personal income from Salary/ wages? or it’s better to keep the company under qualifying company? Thanks for your comment

Grant on June 17, 2012 at 8:49 am

Jerry on April 30, 2012 at 5:19 pm
I have a couple of quetsion on the following LTC with rental activity:
Market value of rental proerty at purchaes: $462,000
Book value as at 01/04/2011: $420,000
Loan amount as at 01/04/2011: $450,000
Total amount (loan+overdraft) for LTC to access (shareholders guaranteed): $600,000
Hey Jerry, what was purchase cost?

Mery on June 19, 2012 at 5:20 pm

Hi Daniel,

I would like to receive the email that you send to Anne
as I have very simular questions. We have LTC secured by family trust and paying expenses from joint account even thought I contribute much more in joined account as my pay account is in other bank. So I wonder if it still consider that it’s 50/50 split?

Mery

Roger on June 25, 2012 at 4:01 pm

Hi there Daniel, I have a similar question to Shadii above, my partner has just started a small business on the side and is going to make a loss in her first year. She is still working and i was looking to offset her loss against the PAYE that she has paid. Should we be looking at setting up a LTC, or should we get into a qualifying company situation or would it be better to just treat her as a sole trader?. Appreciate your comments.

Sara on June 27, 2012 at 8:40 pm

My husband and I have three properties one that we live in in a family trust and the other two we rent out and are set up in a LTC with him having 99% share and me 1% share. We are now at the point of being cashflow positive and we are unsure if we should change our setup. My husband is taxed at the highest pay rate and I am in the lowest tax rate. Are we able to change the shareholding or does that meaning having to recover the depreciation that we have paid? Would we be better to transfer the properties into our family trust (or set up a seperate one?), are we best to buy another property so we are no longer cashflow positive?

Jo on July 3, 2012 at 6:14 pm

Hi Daniel,
I’m also struggling with the ‘Owner’s Basis’ calulation.
Year Ending 31/03/12
Income $18k
Expenses $30k
Therefore Loss $12k

Shareholders 50/50
Opening Shareholder’s Current Account as at 01/04/11 $13,396 cr
Funds Introduced as at 31/03/12 $9,348

Loan as at 31/03/12 $272,000 (secured by both shareholders)
Rental Property Cost Price $275,000
Book Value as at 31/03/12 $258,891

I would really appreciate your help in the calculation.

Regards
Jo

Daniel Hunt on August 8, 2012 at 9:55 am

Hi everyone,

Responses as below:

Viny on April 3, 2012 at 10:39 am – There are a number of other factors to consider here. Please give DHA a call to discuss.

Andy on April 12, 2012 at 9:39 am – You can claim back the loss to the extent of the value calculated under the Owners basis.

Aaron on April 23, 2012 at 7:31 am:

Hi Daniel, very interesting area this. im currently doing a masters and have been doing similar research. If you dont mind, there are a few questions that it would be great to hear your views on:
Matriomonial property
for the purposes of counting owners basis, this seems to throw up a few problems. Is the value of the recourse property split 50-50 for a husband and wife who have given an equal guarantee? Even though the shareholding may be say 90/10.

DH response: The owners basis is based on shareholding.

Joint bank accounts
when a husband and wife pay expenses from a joint bank account, does this mean their owners basis increases equally, or is it then apportioned as per the shareholding?

DH response: The owners basis is based on shareholding.

Daniel Hunt on August 8, 2012 at 9:59 am

Dita on May 29, 2012 at 11:50 am
Hello Daniel, I am confused by the owners basis calculation, when it comes to this you say current account credit balances fall into investments, however what do you mean by current account credit balance? The opening, closing or change during the year? Thanks

Daniel Hunt response: The shareholders have current accounts. When the company owes the shareholders, the account is said to be in credit.

Shadi on June 13, 2012 at 10:29 am
Hi, if there are no income under the company and there are only expenses occurd , can i still change my company to LTC and claim loss against my personal income from Salary/ wages? or it’s better to keep the company under qualifying company? Thanks for your comment

Daniel Hunt response: There are a number of other factors to consider. Please give DHA a call to discuss.

Mery on June 19, 2012 at 5:20 pm
Hi Daniel,
We have LTC secured by family trust and paying expenses from joint account even thought I contribute much more in joined account as my pay account is in other bank. So I wonder if it still consider that it’s 50/50 split?

Daniel Hunt response: Regardless of whether you split the expenses 50/50 or otherwise, when it comes to the owners basis, it is based on shareholding. Thus for couples you could end up having different loss allocations as this will depend on the formula.

Roger on June 25, 2012 at 4:01 pm
Hi there Daniel, I have a similar question to Shadii above, my partner has just started a small business on the side and is going to make a loss in her first year. She is still working and i was looking to offset her loss against the PAYE that she has paid. Should we be looking at setting up a LTC, or should we get into a qualifying company situation or would it be better to just treat her as a sole trader?. Appreciate your comments.

Daniel Hunt response: There are a number of factors to consider here. I would need to know further information. Please give DHA a call to discuss.

Sara on June 27, 2012 at 8:40 pm
My husband and I have three properties one that we live in in a family trust and the other two we rent out and are set up in a LTC with him having 99% share and me 1% share. We are now at the point of being cashflow positive and we are unsure if we should change our setup. My husband is taxed at the highest pay rate and I am in the lowest tax rate. Are we able to change the shareholding or does that meaning having to recover the depreciation that we have paid? Would we be better to transfer the properties into our family trust (or set up a seperate one?), are we best to buy another property so we are no longer cashflow positive?
You can change the shareholding without having to pay depreciation recovered.

Daniel Hunt response: There are a number of other factors to consider. Give DHA a call to discuss.

Jo on July 3, 2012 at 6:14 pm
Hi Daniel,
I’m also struggling with the ‘Owner’s Basis’ calulation.
Year Ending 31/03/12
Income $18k
Expenses $30k
Therefore Loss $12k
Shareholders 50/50
Opening Shareholder’s Current Account as at 01/04/11 $13,396 cr
Funds Introduced as at 31/03/12 $9,348
Loan as at 31/03/12 $272,000 (secured by both shareholders)
Rental Property Cost Price $275,000
Book Value as at 31/03/12 $258,891
I would really appreciate your help in the calculation.
Regards
Jo

Daniel Hunt respnose: Please use the formula as above and you should arrive at the correct calculation.

Daniel Hunt on August 8, 2012 at 10:00 am

Hi everyone,

Due to popular demand, we have developed a new online Look Through Company course. Please see details here: http://www.taxtraining.co.nz/look-through-companies-toolkit

Jo on August 17, 2012 at 12:17 pm

Hey there
My husband and I have a retail trading company. It was an LAQC and losses have been attributed to both of us 50:50 each year since we began trading. However, we have just had our books completed for 2012, there was a loss in the company (always a little one, never anything too dramatic) but this was not applied to our personal tax returns. The loss was carried forward in the company. Not sure what has happened, I remember some paperwork to do with LTCs that my accountant sent thru last year, we paid a large sum on money to do what it was he suggested we should do – but we were never given the opportunity to discuss the changes with him and now I am not sure if anything was done. My husband works for wages and I run the business, we have two children and I usually get FAM at the end of year. My husband usually gets a refund from the Loss and we depend on this to put funds back into our business. Do you have any idea what went wrong? I am a bit stunned actually – he doesn’t have time to see us to discuss further so not sure what happened, can we still do the LTC thing, change to a partnership? what are our options? I don’t understand any of it …

thanks heaps – Jo

Daniel Hunt on August 20, 2012 at 6:57 am

Hi Jo,

We would need to see the Owners Basis calculation as this forms the basis for allocating the loss. Give DHA a call to discuss.

Davo on August 20, 2012 at 1:09 pm

Jo, quite likely is that the transition to an LTC was not done in time and the company became a normal company for the 2012 year. If all paperwork has been completed then it should be an LTC for 2013 and beyond. I doubt it has anything to do with owner’s basis as that tends to be an issue when non cash expenses are making up the loss. If you are making a loss from real expenses then you are funding it so you are ‘keeping up’ so to speak.

Quinn on August 27, 2012 at 10:29 pm

Hi. I would like some clarification regarding the valuation of the investments component of the owners basis calculation. The definition of investments is given as:
investments is the sum of the equity, goods or assets introduced or services provided to the LTC, or any amounts paid by the owner on behalf of the LTC.
What I am particularly interested in here is the services provided component. Presumably working owner salary or wages is excluded from this as it would form part of the income calculation. What, then, constitutes a service provided to the LTC by the owner on behalf of the LTC? Further, how is its value calculated?
I am sole shareholder and perform all duties in the company, but do not draw a wage or salary. Do my unpaid services to the LTC constitute a service that contributes to the investment value? If so, how might it be given a reasonable value? Thanks

Sharon on July 21, 2015 at 7:39 pm

Hi Daniel,
Can you please advise how owners of a profit-making LTC pay themselves? The owners used to pay themselves a monthly amount without PAYE deducted. But the IRD does not allow LTC to pay out shareholder salaries unless PAYE has been deducted. Also the owners are best not to make drawings as this will affect negatively their owners basis due to decrease in shareholders current account balances. So in your opinion, what is the best way today the owners from a profit making LTC?
And if the LTC pay the owners a dividend, it will be a gross dividends with no imputation credits and RWT deducted, is this correct?

Joanne Martin on March 13, 2016 at 8:05 pm

Hi
Would you be able to email me to discuss a small company that is an LTC which I need some advice on for the ‘owner basis’ calculation?

Many thanks
Jo

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