Government closes loopholes for LAQCs

Under the current rules, shareholders in LAQCs have been able to choose to deduct losses at their marginal tax rate then have the profits taxed at the lower company rate, effectively creating an arbitrage.

Finance Minister Bill English told Parliament that from April next year, the vehicles will be treated as limited partnerships, closing the loophole and ensuring "profits and losses are assessed at the marginal tax rate of the investor."

English said told a media conference before his budget speech that he changes are expected to a "reasonably significant amount of revenue," adding $190 million to the crown's coffers, and making up a smaller part of the government's changes to tax as it looks to widen its revenue base through an increase in GST and the removal of depreciation claims on property, while cutting corporate and personal rates.

The government expects it changes will whack professional property investors, who would be almost $15,000 worse off every year, rather than mum and dad property investors, who would be better off by an annual $1,200, according to government estimates. It didn't give an example as to how the tax package will impact on LAQC shareholders.