Investors caught up in the Government-introduced changes around property company structures are being urged to remain patient.
WHK tax partner Jarod Chisholm said last week the Government last week released the much anticipated legislation in relation to the treatment of qualifying companies (QCs) and loss attributing qualifying companies (LAQCs).
While many tax practitioners anticipated modification of the existing regime, the legislation confirmed the creation of a new "look through company" (LTC) regime.
Mr Chisholm had talked to Inland Revenue officials this week asking them to clarify some of the confusion surrounding the new legislation.
"There is no clarity and no certainty for taxpayers.
There is a lot of stuff the IRD has not considered.
"The legislation has been rushed through and our discussion with the IRD is `here's things you haven't considered'.
"Taxpayers cannot make informed decisions without clarity," he said.
The LTC regime would take effect from the first income year beginning on or after April 1, 2011.
For those taxpayers with early balance dates - October 2010 to February 2011 - any transition would not occur until the 2012 income year.
"For existing QCs and LAQCs, the current temptation is to simply convert to look through companies."
Under the new rules, QCs and LAQCs had until six months after the start of their 2012 income year to elect for the change to take effect in 2012.
An LAQC with a March 31 balance date could elect up to September 30 next year to be an LTC from April 1, 2011.
Given the time before a company had to elect to change its structure, and the uncertainty in application of the legislation, Mr Chisholm was recommending taxpayers considering moving to an LTC structure hold off to ensure they fully understood the implications.
The draft legislation did not achieve much of what it was suggested it should do.
"That is one reason why we consider patience is the best course of action, at least until the legislation is finalised in November or December this year."
A disappointing component of the proposed changes for many taxpayers, where an LAQC structure no longer provided benefits, was there was not a simplified and concessionary transition from being an LAQC to just being a standard company.
Property companies
• LAQC (meaning Loss Attributing Qualifying Company) is a company that can attribute losses to shareholders of the company. LAQC companies are commonly formed to help in the purchasing of investment property.
• QC (meaning Qualifying Company) is a closely held company
