Plain language law

New Zealand law explained for everyone

Income Tax Act 2007

Taxation of certain entities - Look-through companies

HB 1: Look-through companies are transparent

You could also call this:

“Look-through companies are treated as if they don't exist for tax purposes”

A look-through company (LTC) is treated as if it doesn’t exist for most tax purposes. Instead, you, as an owner of the LTC, are treated as if you’re directly doing the things the LTC does.

For this to apply, the LTC must have made a special election with the tax department, and it must meet certain rules. You also need to have not cancelled this election before the start of the tax year.

If you’re an owner of an LTC, you’re treated as if:

You’re carrying out the LTC’s activities yourself. You own a share of the LTC’s property. You’re involved in the LTC’s arrangements. You’re doing the things the LTC does and are entitled to what the LTC is entitled to.

The amount of these things that apply to you depends on your ‘effective look-through interest’ in the LTC. This is usually based on your average daily ownership, but can change in some situations.

Even though you’re treated as doing these things, the LTC still makes its own choices about how to handle its tax matters. Then, those choices apply to you as an owner.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM3676672.

Topics:
Money and consumer rights > Taxes
Previous

HA 44: Measuring effective interests, or

“How to calculate your ownership in a company”

Next

HB 2: Previous income and expenditure or loss, or

“Income, expenses, or losses from previous years may still affect your tax”

Part H Taxation of certain entities
Look-through companies

HB 1Look-through companies are transparent

  1. This section applies for the purposes of this Act, other than the PAYE rules, the FBT rules, the NRWT rules, the RWT rules, the ESCT rules, and the RSCT rules, for a person in their capacity of owner of an effective look-through interest for a look-through company (the LTC), for an income year, if—

  2. for the LTC, an LTC election described in section HB 13(1) and (2) has been received by the Commissioner under section HB 13(3) and (4) for the income year; and
    1. the LTC meets the requirements in the definition of look-through company at all times in the income year; and
      1. the election has not been revoked for the income year by an owner of a look-through interest for the LTC by notice received by the Commissioner before the start of the income year.

        1. A revocation notice that is received by the Commissioner after the start of the income year is treated as received before the start of the income year if the Commissioner decides that exceptional circumstances are the sole cause of the lateness.

        2. An owner's revocation notice for the income year is ignored for the purposes of this section and section HB 13(4)(a) if the owner stops having a look-through interest in the LTC and the new owner reverses the revocation notice before the start of the income year by notice to the Commissioner.

        3. For a person, unless the context requires otherwise,—

        4. the person is treated as carrying on an activity carried on by the LTC, and having a status, intention, and purpose of the LTC, and the LTC is treated as not carrying on the activity or having the status, intention, or purpose:
          1. the person is treated as holding property that the LTC holds, in proportion to the person's effective look-through interest, and the LTC is treated as not holding the property:
            1. the person is treated as being party to an arrangement to which the LTC is a party, in proportion to the person's effective look-through interest, and the LTC is treated as not being a party to the arrangement:
              1. the person is treated as doing a thing and being entitled to a thing that the LTC does or is entitled to, in proportion to the person's effective look-through interest, and the LTC is treated as not doing the thing or being entitled to the thing.

                1. For the purposes of this section, effective look-through interest means for a person and an LTC, treating the LTC as a company for the purposes of this subsection,—

                2. a person's average daily look-through interest for the company for the income year, if there is no market value circumstance for the LTC and paragraph (b) does not apply:
                  1. a person's look-through interest for the relevant time of look-through under subsection (4), if there is no market value circumstance for the LTC, and—
                    1. the assessable income of the LTC, ignoring this subpart, is or will be $3,000,000 or more in a 12-month period including the relevant time of look-through, and the Commissioner has notified the LTC that look-through interests for the relevant time of look-through under subsection (4) must be used under this section:
                      1. all persons with look-through interests have agreed to use their look-through interests for the relevant time of look-through:
                      2. if there is a market value circumstance for the LTC and paragraph (d) does not apply, the average of the following 2 amounts:
                        1. a person's average daily look-through interest for the income year:
                          1. a person's average daily market value interest for the income year:
                          2. if there is a market value circumstance for the LTC, and the assessable income and notification requirements described in paragraph (b)(i) are met, the average of the following 2 amounts:
                            1. a person's look-through interest for the time of look-through under subsection (4):
                              1. a person's market value interest for the time of look-through under subsection (4).

                              2. Inland Revenue Act elections and methods relating to an LTC are chosen by the company ignoring subsection (4), and then subsection (4) applies so that the elections and methods are those of an owner of an effective look-through interest for the look-through company.

                              Notes
                              • Section HB 1: inserted, on (applying for income years beginning on or after 1 April 2011, and for the purposes of the Commissioner receiving LTC elections, on and after 21 December 2010), by section 78(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                              • Section HB 1(6) heading: inserted (with effect on 1 April 2011), on , by section 78 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                              • Section HB 1(6): inserted (with effect on 1 April 2011), on , by section 78 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                              • Section HB 1 list of defined terms notice: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                              • Section HB 1 list of defined terms notify: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).