Legislation has now been enacted to change the rules for Qualifying Companies ("QCs") and Loss Attributing Qualifying Companies ("LAQCs") effective from 1 April 2011. (As an LAQC must also be a QC, they are referred to hereafter as QCs).

The key features are:
1. LAQCs will no longer be able to attribute losses to its shareholders, so effectively they become just QCs.
2. No further elections to become a QC can be made for income years commencing from 1 April 2011.
3. Existing QCs can continue under the revised rules.
4. New Look Through Company ("LTC") rules have been enacted to replace QCs.
5. QCs can transition to a LTC or change to another business entity (e.g. ordinary company, sole trader or partnership) without a tax cost.
6. The transition must take place in either one of the first two income years starting on or after 1 April 2011 ("the Transitional Year").
7. IRD must be notified within six months of the start of the chosen Transitional Year of the transition to another entity.
8. If transitioning to a new business entity, the new entity must consist of the same persons who owned the QC.
9. The transition into the new business entity must be completed by the end of the transitional year.
10. All of the QCs' assets, liabilities and tax balances and obligations automatically transfer to the new business entity with no tax cost.
11. Any carried forward losses in a QC (where no election was made to be an LAQC) can be used in future by the shareholders against their share of income from the LTC. If transitioning to a partnership or sole trader, the losses may be claimed against other income.

- Michael Win is a Partner with Rodgers-Law in Dunedin and advises small and medium sized businesses on all aspects of commercial law. © 2011 Rodgers-Law