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HZ 4D: Qualifying companies: transition into sole traderships
or “How a qualifying company can become a sole tradership”
You could also call this:

“Rules for companies leaving the look-through company system due to 2017 law changes”

This law talks about what happens when a company stops being a look-through company (LTC) because of changes made by a new law in 2017. If you own or run an LTC, here’s what you need to know:

The changes affect LTCs at the end of the 2016-2017 or 2017-2018 tax years. If your LTC stops being an LTC because of these new rules, some special things happen.

Usually, when a company stops being an LTC, there are rules about how to handle its assets. But in this case, those rules don’t apply.

Instead, when your company stops being an LTC, it’s treated as if it still has all the tax positions it had just before the change. This means the company, not the owners, is responsible for these tax matters.

The law that made these changes is called the Taxation (Annual Rates for 2016-17, Closely Held Companies, and Remedial Matters) Act 2017. The changes started on the first day this new law applied to LTCs.

Remember, this is just a summary of the law. If you need to know more, you should talk to a tax expert or lawyer who can explain how it applies to your specific situation.

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Next up: HZ 5: Transitional provisions for PIE rules

or “Rules for understanding changes to portfolio investment entity (PIE) tax regulations”
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Part H Taxation of certain entities
Terminating provisions

HZ 4ETransition out of LTC regime for Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017

  1. This section applies when an entity that is a look-through company (an LTC) at the end of the 2016–17 or 2017–18 income years ceases to be an LTC (the cessation)—

  2. on the first day of application for an amendment to LTC-related provisions, in section 288 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017; and
    1. because of an amendment to LTC-related provisions, in section 288 of that Act.

      1. Section HB 4(6) (General provisions relating to disposals) does not apply to the cessation.

      2. An entity that ceases to be an LTC is treated as having, as a company, the tax position it has, ignoring section HB 1(4) (Look-through companies are transparent), immediately before it ceases, and the owners are treated as not having that tax position.

      Notes
      • Section HZ 4E: inserted, on , by section 145 of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
      • Section HZ 4E(1): replaced, on (with effect on 1 April 2017), by section 139 of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).