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  1. #11
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    What about the plans that many of us with LAQC's have? Ultimately, I was looking to transfer the LAQC to a trust. If a LTC is treated like a Partnership, then wouldn't transferal of assets to a trust trigger depreciation recovery?

  2. #12
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    Quote Originally Posted by Recycledak View Post
    A current LAQC company that elects to become a LTC from 1st April 2011 will be able to declare a dividend that is tax free as a LAQC can do right now?
    NO need to declare a dividend as it the capital gain will be deemed to be held by the individual. The only reason to do dividends going forward is if you need to get cash out of the LTC (for legal purposes - it is already deemed to be held by you for tax purposes).

    Quote Originally Posted by Recycledak View Post
    Current LAQC companies that are in a tax loss situation without depreciation should elect to be a LTC to continue flow loses to shareholders personal tax;
    probably.

    Quote Originally Posted by Recycledak View Post
    Current LAQC companies that become tax profit situation without depreciation should elect to be QC so they can pay tax free capital dividends and if a trust si available sell shares to a trust before 1st April as after 1st April transfer of shares will deem depreciation recovery?
    Should probably maintain QC status. This is the default position for an LAQC if you do nothing. Share transfer to trust can be after 31 March as a QC is still a company for tax purposes so no deprecation recovery like there is with an LTC. If you want your LTC to be held by your trust, it should be done prior to 1 April.

    Quote Originally Posted by drelly View Post
    What about the plans that many of us with LAQC's have? Ultimately, I was looking to transfer the LAQC to a trust. If a LTC is treated like a Partnership, then wouldn't transferal of assets to a trust trigger depreciation recovery?
    Correct. Decisions decisions. Move it under a trust now for future captial growth or maintain in own name to get losses for the next few years.

  3. #13
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    Quote Originally Posted by CJ
    Correct. Decisions decisions. Move it under a trust now for future captial growth or maintain in own name to get losses for the next few years.
    This is a real poser... the main question for me is whether or not trusts are going to have any value by the time I'd be likely to benefit from it. Rumblings from Govt seem to suggest that because of the huge value of assets being built up in trusts, we're likely to have a problem as asset testing becomes more of an issue with the aging population. What do you guys think?

  4. #14
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    Drelly - provided you have a trust already, there is no harm in continuting with it. If you dont, you need to weigh up the known entry cost and ongonig admin vs the unknown benefit at the end.

    With the removal of gifting, something needs to change. Will the Govt has kept it quite separate (ie. legislation removing gift has been passed with no trade offs), the Govt has already signalled that there will be some form of look through in relation to working for families. If they manage to get a forumla or format that works, expect that to be rolled out to means test rest home subsidies and ultimately superannuation when they make that means tested (more an issue for the young than the old as it is a politica hot potatoe).

    Having said that, there are other reasons for trusts and I dont expect them to make any changes in relation to creditor protection. Ie. on bankruptsy, there are already powers to look back X number of years to ensure you haven't given away all your wealth to your own trust.

  5. #15
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    CJ - True... but my choices now affect the cost of transfer to a trust later, so it's still something to consider. eg; I'm not going to use a LTC if I want to shift to a trust later because the depreciation recover will be heinous! My current thoughts are to shift my LAQC to a standard company to retain the (cheaper) transfer to a trust. Tax rates are lower with a standard company too.

  6. #16
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    Drelly - my reference to continuing with a trust was in relation to asset protection etc, not the decision in relation to your LAQC. I still might not be clear but we are on the same page.

    Re going from a LAQC to an ordinary company, consider just going to a QC (default option if you do nothing). same benefits of a company you refer to above but also enables you to distribute capital gains tax free (ie. unimputed dividends from a QC are exempt). This will maintain a bit more flexibility over the next few years till they repeal the QC rules (which may be done once they have reviewed the dividend rules).

  7. #17
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    Feb 2004
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    Wellington
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    Hi CJ

    Have been watching this thread with interest. i'm currently pondering what sounds like similar situation to Drelly. i have existing trust plus profitable LAQC (with building depn gone).

    i'm considering merits of swapping to LTC 100% owned by Trust which mildly benefits asset protection + capital distributions, else changing to QC as you suggest. I'm a little worried what might happen to trusts in future, mainly on tax side. They seem to be the next ogre in the gun.

    QC offers added benefit of 28c tax rate. With QC though thinking of keeping share ownership as 50/50 hub/wife. If they changed the distribution rules later, might be benefit for shareholding to be 98/1/1 in favour of trust? Can I change QC shareholding if need be in 2011/12 tax year without penalty to 98/1/1 if need to?

    I must admit I'm mindful that QC's will disapppear, then stuck with a normal coy and won't be able to distribute capital gains (which is benefit of LTC)

    There are trade-offs to the decision.

  8. #18
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    With QC's you will continue to be able to change shareholders with no tax consequenses (provided elections are made) until an announcement that you can no long do such a thing. Any change to QC is likely to come with a change to the dividend rules.

  9. #19
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    Wellington
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    thanks CJ, that's what i thought. QC sounds better option me-thinks

    Just to get all the facts clear - presumably there is a cost (like an entry tax, similar to QC's) to becoming a LTC later on if we don't elect in the coming transition period and decide in 2-3 yrs?

  10. #20
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    Quote Originally Posted by foss View Post
    Just to get all the facts clear - presumably there is a cost (like an entry tax, similar to QC's) to becoming a LTC later on if we don't elect in the coming transition period and decide in 2-3 yrs?
    Correct - similar to existing QCET.
    Essentially, any losses carried forward will be forfeited and any unimputed retained earnings (ie. if you dont have enough IC to pay out your RE in full - normally due to capital gains) will be subject to entry tax at owners marginal tax rate (not sure on rate?). This is a simplification but should be true in 90%+ of cases.


 

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