A Look-Through Company (LTC) is a NZ company type that is transparent for income tax purposes — the company’s income, expenses, and losses flow directly to shareholders’ personal tax returns, as if the shareholders earned the income directly. This combines the legal protection of a company with partnership-style tax treatment.
An LTC passes all income, expenses, and losses through to shareholders in proportion to their ownership. Shareholders pay personal income tax on their share of income. The key advantage: losses can offset other personal income (e.g., salary). This makes LTCs popular for rental property and early-stage businesses with losses. Limitation: loss offset is capped at the shareholder's "amount at risk" (money put into the company).
LTC vs Standard Company
| Feature | Standard company | LTC |
|---|---|---|
| Tax paid by | Company (28%) | Shareholders (personal rates) |
| Losses | Carry forward within company | Flow to shareholders — offset other income |
| Dividends | Separate taxable event | Not applicable — income allocated directly |
| Imputation | Yes | Not applicable |
| Shareholder limit | Unlimited | Maximum 5 look-through counted owners |
| Legal liability | Limited | Limited (same as company) |
| Compliance | IR4 company return | IR7L and owner’s IR3 |
How LTC Income Flows Through
If you own 100% of an LTC:
- LTC earns $80,000 rental income
- LTC incurs $50,000 expenses (interest, rates, insurance)
- LTC net income: $30,000
- This $30,000 appears directly in your personal IR3 as rental income
- You pay personal income tax at your marginal rate
No company-level tax is paid. No dividends. No imputation credits.
The Key Advantage: Loss Flow-Through
The major reason businesses choose LTC status is to use company losses against personal income:
Example — property investor in year 1:
- LTC rental income: $30,000
- LTC interest expense: $50,000
- LTC loss: $20,000
- Owner’s salary: $80,000
- With LTC: $80,000 salary − $20,000 LTC loss = $60,000 taxable income
- Without LTC (standard company): Loss stays inside company; salary still $80,000 taxable
This benefit was particularly valuable before interest deductibility was restricted for residential rental properties. For non-residential property and commercial investments, the LTC loss flow-through remains a significant advantage.
The “Amount at Risk” Limitation
Loss offset is capped at the shareholder’s amount at risk — essentially how much money they have genuinely put into the company:
Amount at risk includes:
- Capital contributed to the company
- Loans made to the company (genuine loans)
- Retained profits allocated to the shareholder
You cannot use LTC losses to offset personal income beyond your actual investment in the company. Losses exceeding this cap are carried forward within the LTC.
Who Should Use an LTC?
LTCs work best for:
- Property investors with commercial or industrial property (where interest is still deductible and losses may arise)
- Early-stage businesses expecting losses in the first 1–3 years that can offset salary income
- Multiple shareholders wanting transparent income allocation (e.g., two partners in equal proportions)
- Small businesses where the owner wants personal tax rates instead of the 28% company rate (useful when personal rate is below 28%)
LTCs are not ideal for:
- Mature, profitable businesses (no imputation credits; loss flow-through not needed)
- High-income owners where personal rate > 28% and retained earnings are a goal
- Companies planning to raise outside equity (complex with LTC rules)
Electing LTC Status
To elect LTC status:
- All shareholders must agree
- File an IR862 (LTC election form) with IRD
- Election applies from the start of the next income year (or from incorporation if filed promptly)
To exit LTC status:
- File a revocation before the start of the income year
- Exiting has tax implications — get accounting advice as “exit” rules apply to the company’s assets
Frequently Asked Questions
Is an LTC a company?
Yes — it is registered on the Companies Register exactly like a standard company. The difference is purely for income tax purposes. For legal (liability, contracts), it is a standard company.
Can I have an LTC for my rental property?
Yes, and many NZ investors do. However, since 2023, residential rental LTCs have been subject to the same interest deductibility restrictions as personally-held rental properties (the benefit of holding rental property in an LTC for interest deductions has been largely removed).
Are there GST implications when converting to an LTC?
Not directly from the LTC election itself. GST obligations remain the same as a standard company.
Can an LTC own shares in another company?
Limited. Ownership restrictions apply — check with your accountant if complex structures are involved.