You could set up a company to own your investment property.  Company profits are taxed at the flat company tax rate of 30%.  One advantage of setting up a limited liability company to own your investment property is that it’s a separate legal entity, so you can separate your business and personal assets.  This helps protect your personal assets if anything goes wrong. 

A company has its own legal status (like a person). It is separate from its shareholders (its owners). It needs to be legally formed, which involves registering the company name, creating a constitution (rules) for the company and issuing shares. You also need to get a separate Inland Revenue number for the company.

A company is administered by a Director or Directors, who can also be shareholders.  Directors are legally bound to act in keeping with the relevant legislation and the Company’s own constitution.

If you anticipate making a loss on your rental property, you can apply to the Inland Revenue for it to be deemed as a special type of company called a Loss Attributing Qualifying Company (LAQC) for tax reasons.  With a LAQC, losses can be apportioned against the Shareholders’ personal income, to reduce their personal tax obligations.  For more information on LAQCs you can download a useful booklet from the Inland Revenue website. If the company is not a LAQC, any losses may be carried forward to subsequent years and may be able to be offset against future profits. 

Setting up a company

A company must be incorporated through the Companies Office.  You can do this yourself online, or your accountant or solicitor can do it on your behalf.

Advantages

• Separates personal assets from business assets.
• Limits your liability if something goes wrong with the property and a claim is made against you.
• LAQCs can be used to offset any losses against Shareholders’ personal income.

Disadvantages

• Costs involved in setting up the company.
• More complex to administer – specific records must be kept to comply with the law (e.g. minutes of meetings and decisions) and file separate tax returns and Companies Office returns.

This material is for information purposes only. You should seek professional advice related to your individual circumstances. While The National Bank has taken care to ensure that this information is from reliable sources, it cannot warrant its accuracy, completeness or suitability for your intended use. To the extent permitted by law, The National Bank does not accept any responsibility or liability arising from your use of this information. Our lending criteria, terms, conditions and fees apply.