The Government will be introducing new rules preventing loss attributing qualifying companies (LAQCs) from passing losses on to their shareholders said Minister of Revenue, Peter Dunne today.
The move follows public consultation on proposals for reforms to the tax rules announced in Budget 2010 for qualifying companies (QCs) and LAQCs.
The new rules will also provide a flow-through income tax treatment for closely held companies who choose to use them.
Business income and losses will be able to be passed to shareholders who will pay any tax due, but the rules will allow a business to still have the benefits of a company, such as limited liability.
"In response to feedback from small businesses, the Government has also decided to review the tax rules for dividends, with a view to simplifying them for closely held companies" said Dunne.
Until this review is undertaken, existing qualifying companies and LAQCs can continue to use the current qualifying company rules, but without the ability to attribute losses.
Draft legislation for these changes will be available from Inland Revenue later this week, for feedback.
Dunne said that the draft legislation will allow existing qualifying companies and LAQCs to transition into the new flow-through rules, or change to another business vehicle such as a limited partnership, without a tax cost.
The legislation for the new rules is expected to be enacted before the end of this year and will come into effect from 1 April 2011.