Property investing boom doubles LAQC tax losses

The New Zealand Government is subsidising property investors by at least NZ$700 million a year, largely due to the widespread use of Loss Attributing Qualifying Companies (LAQCs) to claim tax losses and offset them against personal income. Investors using LAQCs more than doubled their claimed tax losses to NZ$2 billion between 2003 and 2007, data supplied to interest.co.nz by the IRD shows. The number of active LAQCs almost doubled over the past four years, with the average loss claimed by individual LAQCs increasing by nearly half since 2003. The IRD data was not able to break out what kind of investments were involved in each LAQC, but the significant increase in the number of active LAQCs over the past four years can be linked with the property investing boom over the same period.

Between 2003 and 2007 there was an increase of NZ$1.112 billion in tax losses claimed through LAQCs. The IRD data shows that in 2007, NZ$1.822 billion of tax losses was claimed by 118,000 active LAQCs, with an average claim of NZ$15,000. In 2003, claims were NZ$709.8 million by 63,400 LAQCs, with an average claim of just over NZ$11,000. The 2007 figures indicate that the New Zealand Government is subsidising property investors by at least NZ$700 million a year, as there are avenues other than LAQCs that can be used to claim tax losses from property investment. Previously on interest.co.nz there has been spirited debate on the use of LAQCs. The Green Party also recently released its housing policy, calling for restrictions to be applied to LAQC tax breaks. The IRD told interest.co.nz it had begun telling property investors about their taxation obligations. "One area where the likely requirement to pay tax does emerge, is if a property was bought with the firm intention of selling it when prices rise - to make a gain from the increase in its value. Explaining to people how this obligation occurs has been a feature of our awareness campaign," an IRD spokesperson said. Late last year, the IRD issued a Revenue Alert to tax agents warning about the practice in which shareholders of a LAQC company, involved in residential rental, live in the home owned by the LAQC company. "We are following this issue up by sending letters to individual shareholders in LAQCs that have rental losses, to remind them that such arrangements are considered to be tax avoidance," the spokesperson said.