What Is a Look-Through Company (LTC) in NZ?

A look-through company (LTC) is a special type of New Zealand company where the income, expenses, and losses of the company are treated as if they belong directly to the shareholders — rather than to the company itself.

It is a structure that can offer significant tax advantages in the right circumstances, particularly for property investors and businesses in their early years. But it is not right for everyone, and the rules have some important limitations.

Here is what you need to know.

In a standard New Zealand company, the company pays tax on its profits at 28%. Losses stay inside the company and can only be used to offset future company profits. Shareholders cannot use company losses against their personal income.

This works well when the company is profitable. But in the early years of a business — or for a rental property running at a loss — it means losses are effectively locked up and cannot reduce your personal tax bill.

An LTC is still a registered company under the Companies Act. It has the same legal structure and liability protection as any other company.

The difference is in how it is taxed. An LTC is "transparent" for tax purposes — IRD looks through the company to the shareholders. Each shareholder is treated as if they personally earned the company's income and incurred its expenses and losses, in proportion to their ownership share.

This means:

• Company profits are taxed at the shareholder's personal tax rate (not the 28% company rate)
• Company losses can be offset against the shareholder's other personal income — reducing their overall tax bill

This is the most common use case. A rental property held in a standard company cannot pass its losses (interest, rates, insurance, repairs) to the shareholders. In an LTC, those losses flow through and can reduce the owners' personal taxable income.

Note: The interest limitation rules introduced in recent years have significantly reduced the deductibility of interest on residential rental properties. The rules are complex and have been subject to ongoing changes — get current advice before assuming interest is deductible.

If you are starting a business that will run at a loss for the first year or two, an LTC lets those losses reduce your personal income tax during that period. In a standard company, the losses sit unused until the company becomes profitable.

If you own 100% of the company and your personal tax rate is at or below 28%, an LTC can simplify your tax position — your company income is just your personal income, taxed once at your rate.

LTCs are not suitable for every situation. There are important restrictions:

Loss limitation rules. You can only use LTC losses up to the amount you have "at risk" in the company — essentially, the amount you have invested or lent to it. If the company owes money to third parties (like a bank), those losses may be restricted.

Maximum 5 shareholders. An LTC can have no more than five look-through counted owners. This makes it unsuitable for businesses with multiple investors.

No corporate tax rate advantage. Because income is taxed at personal rates, you lose the benefit of the 28% company rate if your personal rate is higher. At $180,000+ personal income, you are paying 39% on LTC profits versus 28% in a standard company.

Complexity increases with multiple shareholders. Tracking each shareholder's "at risk" amount and allocating income and losses correctly adds compliance cost.

Not suitable for businesses planning to retain earnings. If you want to leave profits in the company to reinvest, a standard company at 28% is more efficient.

To become an LTC, the company must:

1. Be a New Zealand-resident company
2. Have five or fewer look-through counted owners
3. Have all owners be natural persons, trustees of certain trusts, or other LTCs
4. File an election with IRD (using the IR862 form)

The election must be made before the start of the income year in which you want LTC status to apply. You cannot elect mid-year.

Revoking LTC status is possible but has tax consequences — there can be a deemed disposal of assets at market value, triggering tax. This is an important consideration if you are thinking about changing structure later.

The answer depends on:

• Your personal tax rate versus the 28% company rate
• Whether the company is expected to make losses in the near term
• How many shareholders are involved
• Whether you plan to retain earnings in the company
• The nature of the assets held (property rules are particularly complex)

This is not a decision to make without professional advice. The wrong structure can cost you significantly more in tax than the right one saves.

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Eastmure & Associates advises on business structuring, LTC elections, and tax planning for property investors and SMEs across Christchurch, Canterbury, Selwyn, and Waimakariri.