Look-Through Company (LTC) in NZ: What It Is, Tax Rules & How to Set One Up

A Look-Through Company (LTC) is a hybrid business structure that combines the limited liability protection of a registered company with the pass-through tax treatment of a sole trader or partnership. For many New Zealand small business owners and property investors, it offers a middle ground that a standard company or sole trader structure cannot.

This guide explains how LTCs work, who qualifies, and when this structure makes sense for your situation.

What Is a Look-Through Company?

An LTC is a standard New Zealand company — registered with the Companies Office, with a separate legal identity — that has elected a special tax status with Inland Revenue. Once the election is made, the company itself ceases to be a taxpayer. Instead, its income, deductions, and tax credits “look through” to the shareholders and are reported proportionally on each shareholder’s personal tax return.

The key word is “proportionally.” If you own 60% of an LTC and it earns $100,000, you include $60,000 in your personal income tax return. If it makes a $40,000 loss, you may be able to claim $24,000 as a deduction against your other income (subject to the owner’s basis rule, explained below).

This structure has existed in New Zealand since 2011, replacing the earlier loss attributing qualifying company (LAQC) regime.

How LTC Tax Works

Under standard company rules, the company pays tax at 28% on its net profit. Shareholders then pay personal tax on dividends received, with imputation credits attached to prevent full double taxation.

An LTC bypasses the company-level tax entirely. Each shareholder:

1. Receives their proportional share of the LTC’s income and expenses
2. Reports that share in their individual tax return (IR3)
3. Pays tax at their personal marginal rate — 10.5%, 17.5%, 30%, 33%, or 39% depending on total income

This means an LTC shareholder on a 17.5% marginal rate pays less tax than a standard company would (28%). Conversely, a shareholder on the 39% top rate pays more. The LTC structure is tax-neutral or advantageous when shareholders’ personal rates are at or below the 28% company rate.

There is no separate company tax return for an LTC. Each shareholder files their own return including the LTC income or loss. The LTC itself still files an LTC return (IR7L) to report the total figures and allocation to shareholders.

LTC vs Sole Trader vs Standard Company

Feature	Sole Trader	LTC	Standard Company
Tax rate	Personal marginal	Personal marginal (pass-through)	28% flat
Limited liability	No	Yes	Yes
Loss offset	Against all income	Against personal income (up to owner’s basis)	Carried forward in company
Max owners	1	5	Unlimited
Setup complexity	Minimal	Moderate (company + LTC election)	Moderate

The LTC sits between the two: you get limited liability (your personal assets are protected from business debts) without the company tax rate applying to retained profits.

Eligibility Requirements

Not every company can elect LTC status. The rules are strict:

• Maximum 5 shareholders: The company can have no more than 5 “look-through counted owners” at any time.
• NZ-resident natural persons or trustees: Every shareholder must be either a New Zealand-resident individual or a trustee of a trust. Companies, partnerships, and non-residents cannot hold shares in an LTC.
• All shareholders must consent: Every shareholder must agree to the LTC election in writing before it can take effect.
• Election via IR862: The company must file form IR862 with Inland Revenue to elect LTC status. The election applies from the start of the income year in which it is filed.
• Continuity requirements: If an LTC breaches any eligibility requirement (e.g., a shareholder becomes non-resident, or shares are transferred to a company), it automatically loses LTC status and reverts to a standard company.

Once lost, LTC status cannot be re-elected for two years.

Owner’s Basis Rule

The most important limitation of LTC tax treatment is the owner’s basis rule. Shareholders can only claim LTC losses to the extent of their “owner’s basis” — which represents their economic stake in the company.

Owner’s basis is calculated as:

Owner’s basis = Capital contributed + Shareholder loans to company + Retained LTC income − Distributions received − Previous losses claimed

In plain terms: you cannot claim more in losses than you have actually invested or lent to the company. If your basis is $30,000 and the LTC makes a $50,000 loss attributable to your share, you can only claim $30,000 now. The remaining $20,000 loss is carried forward and can be claimed when your basis increases (e.g., you contribute more capital or the LTC earns income in a future year).

This rule prevents shareholders from generating paper losses beyond their real economic exposure — a safeguard introduced when LTCs replaced LACQs, which had been used aggressively for tax minimisation.

When an LTC Makes Sense

An LTC is worth considering in several common scenarios:

Rental property investment: A property-owning LTC gives you limited liability (your home is not at risk if a tenant sues) while allowing rental losses — common in the early years of a property investment — to flow through and offset your employment income. Note that the interest limitation rules introduced in 2021–2023 significantly reduced rental deductions, so model the numbers carefully for residential property.

Small businesses with losses in early years: A startup expecting losses for the first few years can use an LTC so those losses reduce the owner’s tax bill on other income (salary, freelance work) during the loss period, rather than sitting locked inside a company.

Owners on lower marginal tax rates: If all shareholders are on personal rates at or below 28%, LTC treatment avoids the flat company rate. For example, a couple co-owning a business, each earning modest incomes, may pay less tax through an LTC than through a standard company.

Simplicity with protection: Some business owners prefer the simplicity of pass-through taxation (no company tax return, no imputation credit accounts to manage) while still wanting the legal separation of a company.

How to Set Up an LTC

Setting up a look-through company follows these steps:

1. Register a company: Go to the Companies Office website (companies.govt.nz) and incorporate a standard New Zealand limited liability company. You will need a company name, at least one director, and at least one shareholder. The registration fee is currently $116.

2. Open a business bank account: Open a separate bank account in the company’s name. Keep the company’s finances completely separate from personal accounts.

3. File the IR862 election: Download and complete Inland Revenue’s IR862 form (“Election to become a look-through company”). All shareholders must sign. Submit to IRD before the end of the income year you want the election to take effect. IRD will confirm the election in writing.

4. Set up accounting: Use accounting software (Xero, MYOB, or similar) configured for LTC treatment. Your accountant should track each shareholder’s owner’s basis separately, as this affects how much of any losses can be claimed each year.

5. File annual returns: Each year, the LTC files an IR7L return and each shareholder includes their share of LTC income or losses in their personal IR3. There is no company income tax return (IR4) for an LTC.

Consider speaking with an accountant before making the election. The setup cost is modest but the ongoing compliance — particularly owner’s basis tracking — is more involved than a sole trader structure. Use our Self-Employment Tax Calculator to model your estimated tax under different scenarios.

When to Choose a Standard Company Instead

A standard company is likely the better choice when:

• You want to retain profits at 28%: If you plan to leave significant profits inside the business rather than distributing them, the 28% company rate is lower than the 33% or 39% personal rates that would apply through an LTC.
• You need more than 5 owners: LTCs are capped at 5 shareholders. Any business with more investors, employees holding shares, or multiple family trusts as shareholders will not qualify.
• You have non-resident or corporate shareholders: Investors from overseas, or holding companies in a larger group structure, cannot hold LTC shares.
• You are building to sell: A standard company is easier to structure for a future sale, external investment, or employee share schemes.
• Your shareholders are on high marginal rates: If owners are consistently in the 33–39% bracket, paying company tax at 28% and deferring personal tax through imputation credits is more efficient.

For a detailed comparison of these structures, see our guide to Sole Trader vs Company in NZ.

Sources

• Look-through companies — IRD
• Owner’s basis — IRD
• IR862 election form — IRD
• Companies Office — Register a company