Loss Attributing Qualifying Companies (LAQC)

IR Ref: IR4PB

 

Small private companies (maximum of 5 shareholders but can be more in certain circumstances) will claim company tax losses in the shareholders’ tax returns, if they are LAQCs.

 

Advantages

  • If shareholders pay themselves wages, deducting PAYE and their company makes a loss, they may use the loss to obtain a tax rebate.
  • Sometimes shareholders draw too much money out of their company and consequentially are required to pay fringe benefits tax. This tax can usually be avoided with the aid of an LAQC.
  • Continuity requirement of 66% for maintaining an ICA balance may be suspended for Qualifying Companies so long as the required elections have been made. Never change the shareholding of your company without first checking your situation carefully with us first.

 

Disadvantages

  • All shareholders have to agree to be personally responsible for the company income tax, if any. This can be an issue if the company becomes insolvent. Debts owing by a company which never get paid, become company income with consequential income implications.
  • Qualifying Company Election Tax may be payable on entry to the Regime.
  • Any company losses from previous years are forfeited on entry to the Regime.

 

Traps

  • If the shareholding changes, you must re-register as an LAQC within 63 days or you will cease to have qualifying company status.
  • Registering only as a qualifying company is not sufficient. You must also register as a loss  attributing qualifying company as well.
  • In the first year of trading you have until the last day for submitting a tax return, to register. If you miss the deadline, you will not be able to obtain LAQC status for two years and you may be faced with company losses you cannot use.

 

Illustration

Company is formed in May 2007. Its first year ends 31 March 2008. It has, provided it is registered on its accountant’s agency list, until 31 March 2009 to register as a qualifying company and LAQC. If the deadline is missed, and an application lodged say 10 April 2009, qualifying company status will not occur until 1 April 2010, which is the year ended 31 March 2011.