Loss Limitation Rule Changes for any NZ LTC Company – by James Walsh

The much hated ‘owner’s basis’ calculations required since the LTC company regime started in NZ in 2012, are about to change. This is good news for the many LTCs now in existence and their accountants!

Up to and including the 2016–17 income year, the tax deductions available to owners of LTCs were limited to their ‘owner’s basis’ which was effectively the value of their investments in the LTC. The purpose of the rule was to ensure that the tax deductions claimed by the owners of any LTC company in NZ were in line with the amount of ‘skin they had in the game’.

In effect, if the LTCs deductions exceeded the value of the investment, then the deductions were limited and the excess carried forward to future tax years.

From the 2018 income year, the (much hated) rule is amended so that it is restricted to LTCs in a joint venture or a partnership. For most LTCs this means that deductions that were previously restricted will be available to offset against other income from the 2018 income year onwards.

Of course, now there is a new NZ Labour government, the LTC company rules may change again at some point – so watch this space.

You can always contact us at Q2 to help you manage the ins and outs of your business.

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