Tax Alert June 2011

Look-Through Companies (LTCs) and Transactions with Shareholders

In our March 2011 Newsletter, we made the comment that the ability to debt restructure under the LTC regime was largely gone as a result of the provisions contained in Section HB1(4) which deem the shareholders to hold the property and the shareholders to enter into any financial arrangements.

Following discussions with IRD Head Office, we understand that Revenue policy will be to continue to allow interest deductions where personal residences are sold to a LTC and rented to persons other than the shareholders, i.e. taxpayers will still be able to release equity from their former residences to fund the purchase of a replacement property and obtain an interest deduction.

Effectively the logic to this is that the intention of the legislation is not to ignore transactions between shareholders and a LTC.

Should you have any queries in relation to the above, please do not hesitate to contact ourselves.