What Should You Do With Your LAQC?

There have been significant changes to the law surrounding your Loss Attributing Qualifying Company (‘LAQC’). From 1 April 2011 losess will no longer be attributable to the shareholders of the LAQC and unless you have nominated otherwise, your LAQC will automatically become a Qualifying Company (‘QC’). As has always been the case with QC’s, you will not be able to attribute losses to the shareholders as you did with the LAQC. Furthermore, profits will be taxed at the company tax rate. This may be a good structure for you if your company is currently making a profit. On the other hand, it may not be.

If you do not think that a QC is the right structure for your company, you have until 30 September 2012 to opt for any one of the following structures:

• Look Through Company (‘LTC‘) status;
• Ordinary company (ie. non QC status);
• Partnership or Limited Partnership; or
• Sole trader.

LTC

LTC’s are a new tax entity created to replace the LAQCs, but with important restrictions. An LTC’s income, expenses, tax credits, rebates, gains and losses may be passed on to its owners in accordance with their interest in the company. However, the extent that losses can be applied to the shareholders of an LTC is limited to the extent that the losses reflect each shareholder’s economic loss (eg. loans and guarantees). In most cases, the ability of LTCs to attribute losses to its shareholders will be limited.

In considering this structure, it is important to ask whether or not there will be any economic benefit from the LTC structure, particularly as the compliance costs associated with an LTC will be greater than those under the LAQC regime.

Ordinary Company (ie. non QC status)

There is no ability to attribute losses through the ordinary Company structure. However, if you anticipate that your company will start to make a profit in the coming years, then this structure may be appropriate for you.

Partnership or ‘Limited Partnership’

If your LAQC is making a loss and you believe it will continue to do so, then a partnership structure may be the right choice for you – particularly if there are no real benefits to you of continuing to operate under a ‘limited liability’ structure. You will be able to continue to apply your losses in the same manner that you did under your LAQC, and the compliance costs will be minimal compared to the company structures referred to above.

A ‘Limited Partnership’ is a complex legal structure and, as such, the setup & compliance costs associated with this structure are considerable. Accordingly, a ‘Limited Partnership’ structure is only really appropriate for significant joint venture arrangements.

Sole Trader

Like the partnership structure, a sole trader structure may be appropriate for you if your existing LAQC is making a loss and you are its only natural shareholder and there is no real benefit to you of continuing to operate under a ‘limited liability’ structure. Losses will be passed through to you as they were with your LAQC and your compliance costs will be minimal.

As you can see, there is a lot to think about when planning the restructuring of your LAQC and there is no ‘right’ answer. We suggest that you contact your accountant and your lawyer to talk through the implications and to come up with the best solution for your unique situation.