Asset Shielding & Corporations

Asset Protection & Tax Structuring

Integrating Family Trusts with Look-Through Companies (LTC) and corporate holdings optimizes tax outgoings while shielding real estate capital from creditors and relationship claims.

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Bankruptcy Clawback Warning

Transferring assets to a Family Trust does not immediately shield them from existing creditors.

Clawback Deadlines: Under the Insolvency Act 2006, the Official Assignee can reverse property transfers made within **2 years** of bankruptcy automatically, and up to **5 years** unless you prove you were solvent when gifting occurred.

Look-Through Companies (LTC) vs. Historical LAQCs

The Abolition of LAQCs (2011)

Historically, property investors utilized Loss Attributing Qualifying Companies (LAQCs). This structure allowed commercial rental losses to pass directly to shareholders to offset their personal PAYE income tax outgoings, while capital gains remained ring-fenced.

The Reform: The NZ Government abolished LAQCs in 2011 to close tax loopholes, transitioning existing structures to either standard companies or the modern Look-Through Company framework.

HISTORICAL CONTEXT

The Modern Look-Through Company (LTC)

An LTC is a registered limited liability company that IRD treats as a partnership for tax purposes. Profits, losses, depreciation, and tax credits pass directly through to shareholders in proportion to their holdings.

The Advantage: Shareholders enjoy corporate limited liability protection (shielding personal wealth from trade creditors) while avoiding double taxation on company profits.

FLOW-THROUGH TAX STRUCTURE

NZ Structuring Scorecard: Sole Trader vs. Company vs. LTC vs. Trust

Structuring Option	Liability Protection	Tax Treatment	Management Complexity
Sole Trader	None. Personal assets (home) are fully exposed to business creditors.	Income added to personal tax return at individual marginal rates.	Low. Minimal compliance outlays.
Standard Company (Ltd)	Limited. Personal liability isolated unless personal guarantees signed.	Flat 28% company tax rate. Profits paid as dividends.	Moderate. Requires annual return filings and company minutes.
Look-Through Company (LTC)	Limited. Corporate shield isolates business debt from shareholders.	Partnership pass-through. Profits taxed at shareholder's marginal rate.	Moderate. Requires annual IRD partnership return (IR7) filings.
Family Trust	High. Assets legally owned by trustees, isolating them from personal debts.	Trustee income flat 39% rate, or distributed to beneficiaries at their marginal rates.	High. Requires annual accounts, trustee resolutions, and compliance.

Coordinating Trusts and Look-Through Companies

The Property Investment Structure

A highly effective asset protection strategy for New Zealand property investors involves nesting structures: **the shares of the Look-Through Company (LTC) are owned by the trustees of the Family Trust**.

**How It Works**: The LTC purchases and holds residential or commercial investment properties, sheltering the investor from personal tenant liabilities. The rental income or losses flow directly through the LTC to the Family Trust (as the shareholder).

**The Benefit**: The trustees can distribute that income among the trust's beneficiaries (such as spouse or children in lower tax brackets) to minimize the family's overall tax footprint, while keeping the property safely insulated inside the trust shield.

Structure Benefits Checklist:

**Isolate Real Estate Capital**: Tenants sue the LTC, not the Trust or you.
**Income Splitting Options**: Distribute profits to low-bracket beneficiaries.
**KiwiSaver Protection**: Personal business debts cannot attach to Trust assets.
**Ease of Sale**: Transfer company shares rather than re-registering property titles.

Insolvency Act 2006 & Property Law Act Clawbacks

Under New Zealand statutes, courts hold the power to reverse asset transfers to a Family Trust if they find the transaction prejudiced existing creditors:

Statute & Clause	Clawback Timeframe	Insolvency Proof Needed?
Insolvency Act (Section 204)	Asset transfers made within 2 years of bankruptcy.	No. Clawback is automatic, regardless of solvency at the time.
Insolvency Act (Section 205)	Asset transfers made between 2 to 5 years of bankruptcy.	Yes. Reversible unless settlor proves they were solvent during transfer.
Property Law Act (Section 344-348)	No Time Limit. Applies if assets were transferred with intent to defraud creditors.	Yes. Creditors must prove intention to escape liabilities.

Establish an LTC or Vett Your Asset Structure

Ensure your company shares are held securely by your Family Trust trustees, tax returns flow through correctly, and bankruptcy clawback timelines are managed. Request a quote today.

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Frequently Asked Questions

An LTC is a standard limited liability company registered with the Companies Office that has elected "look-through" tax status with the IRD. It limits shareholders' personal liability for company losses and obligations to their share investment, while allowing taxable income or deductible losses to pass directly to shareholders' tax returns.

Yes. Under IRD rules, trustees of a Family Trust can hold shares in an LTC. However, because LTC rules require all ultimate owners to be natural persons or other LTCs, the trust must satisfy specific criteria (e.g., all beneficiaries must be relatives within certain degrees of kinship) to prevent the company from losing its look-through status.

Assets transferred to a Family Trust before entering a relationship are owned by the trustees, not by you personally. At separation, these assets do not automatically form part of the relationship property pool subject to 50/50 division. However, courts can make orders adjusting trust assets under Section 443 of the Property Law Act if the transfer was executed to defeat relationship property rights. Setting up the trust early is crucial.

Instruct Quay Law for Your Transaction

Contact our Remuera office to discuss your sale or purchase contract, title checks, or financing arrangements.