“Look-through” effectively means that for income tax purposes we ignore the company, which is the legal entity carrying on a business, and include the company’s profits or losses in the shareholders’ tax assessment instead.
Under the new LTC rules, income, expenses, tax credits, gains and losses are generally passed on to the company’s owners, in accordance with their shareholdings in the company. The income of an LTC is assessed, and expenses deducted, as if each owner had received that income and incurred the expenses personally.
Any profit is taxed at the owner’s marginal tax rate, and the owner can use any losses against their other income, subject to a loss limitation rule similar to that for limited partnerships.
The LTC retains its corporate obligations and benefits under general company law, but will generally be ignored for income tax purposes. However for certain other tax purposes, such as PAYE and GST, the IRD will continue to recognise the company.