Look-through company loan in NZ: what lenders ask for and how they read your income

If you own a look-through company, you hold a strange hybrid in a lender’s eyes: a company that doesn’t pay its own income tax. That’s neither a plain company file nor a plain sole trader file, and the lender has to read both. Knowing which papers they pair up, and where the numbers usually disagree, saves a lot of back-and-forth.

What is a look-through company, in lender terms?

An LTC is a separate legal entity. Inland Revenue says that for income tax it is treated like a partnership: owners pay tax on the company’s profits and can offset its losses against their other income. Owners are also treated as carrying on the company’s activities and holding its property.

For a lender that gives two layers to read:

• The company layer: the legal borrower, with its own bank account, assets, PPSR registrations and financial statements.
• The owner layer: where the income actually lands for tax, and where guarantees and personal credit files come in.

Compare that with a standard company, where the lender mostly reads company returns, or a sole trader, where it reads one personal return. An LTC needs both sets, lined up. Our guide on structure and borrowing covers how the other structures compare.

Which documents will a lender ask for?

It depends on the paperwork route (see business credit by paperwork level), but for an LTC you can expect some mix of:

Document	What it shows the lender
Company financial statements	Revenue, expenses, assets, debts, shareholder current accounts
IR7 (partnership and LTC return)	The LTC’s income and expenses as reported to Inland Revenue
IR7L (income/loss distribution)	Each owner’s share of profit or loss
Each owner’s personal return	Where the LTC income was declared, plus other income
Business bank statements	Actual cash through the account
Companies Office extract	Directors, shareholders, registered address
PPSR search	Existing security over company assets

The IR7L matters most because it’s the bridge. Inland Revenue lists what it needs: owners’ names and IRD numbers, the income or losses distributed to each owner, their share percentages, non-allowable deductions and extinguished-loss deductions. If the IR7L hasn’t been filed, a lender can’t tie the company profit to anyone’s personal return.

The document checklist builder can turn this into a list matched to the route you’re taking.

How does a lender read LTC income?

Lenders want to know what the business can service, and what the owners can fall back on. In practice they look at:

1. Company profit before owners’ drawings. This is the business’s capacity.
2. Each owner’s share. If three owners share the LTC 50/30/20, the lender sees three different pictures of the same profit.
3. Owners’ other income. Wages from another job, rental income, other businesses.
4. Drawings and current account balances. A large debit balance owed by a shareholder to the company is worth explaining.

Illustrative only. Two partners in a Timaru building firm own an LTC 60/40. The company shows $180k profit. The IR7L attributes $108k and $72k. One partner also has $40k of rental income in their personal return. A lender assessing the borrowing will use the $180k to judge the business, then look at each partner’s full personal picture because both are likely guarantors. If the partners’ personal returns showed only a quarter of that, the lender would ask why.

Why do LTC numbers often not match?

This is where applications slow down. Common causes:

• Timing. Accounts prepared on one basis, GST on another. See getting GST returns up to date.
• Non-allowable deductions. Items in the accounts that can’t be claimed for tax change the figures between the accounts and the IR7.
• Losses brought in. Inland Revenue says that when a company becomes an LTC, any loss balance from previous years is cancelled. If the business changed to LTC status recently, older losses won’t appear in the owners’ returns.
• Shareholder accounts. Money in and out of the company that isn’t salary or profit shares shows up in the accounts but not in the returns.
• ACC. Working owners may pay ACC levies on LTC income, and Inland Revenue notes the treatment depends on whether you’re a passive shareholder, self-employed or paid wages. That affects what a lender sees as take-home.

Ask your accountant for a one-page reconciliation: accounts profit, adjustments, IR7 figure, each owner’s allocation. It’s a small job that answers the lender’s first question before it’s asked.

Do owners have to give guarantees?

Often. Most lenders want the working owners to guarantee company borrowing, because the company is the legal borrower but the tax and the personal assets sit with the people. Read the guarantee carefully: whether it’s unlimited, whether it covers future borrowing, and whether a spouse or trust is asked to sign. See our guide to PPSR registrations and security for what else lenders register. Get independent legal advice before signing any guarantee or mortgage. That’s not a formality; it protects you.

Does it matter how long you’ve been an LTC?

It can. A lender reading the trading history will notice if the company elected LTC status part-way through. Inland Revenue says an existing company must send the election before the start of the income year it applies to, so the switch lines up with a tax year. That gives two sets of returns to explain: company returns before the election, and IR7s afterwards. Keep a short note of the election date and why you made it, and have both sets of returns ready.

It also matters if the company stops qualifying. Inland Revenue says a company that no longer meets the criteria stops being an LTC automatically. The usual triggers are ownership changes: more than five look-through counted owners, or an ordinary company taking a shareholding. If you’re bringing in an investor or moving shares into a trust, check the effect on LTC status first, because it changes whose returns the lender reads.

What does the lender check on the ownership side?

Because the owners carry the tax and the guarantees, a lender will usually:

• confirm shareholders and directors on the Companies Office register;
• check each guarantor’s credit file;
• ask who else relies on the same income, such as a partner or a trust;
• look at personal borrowing already in place, like a home loan, since it competes for the same income.

If a family trust holds shares, expect questions about the trust deed and who the trustees are. Have those papers to hand.

What if your LTC paperwork isn’t up to date?

Plenty of LTCs have a trailing IR7L, an accountant who is a year behind, or owners whose personal returns haven’t been filed. That doesn’t make borrowing impossible, but it changes the route:

• Low doc: an income declaration supported by bank statements, instead of the full return set. See how to prepare a low doc declaration.
• Bank statement lending: reads actual deposits and conduct of the account.
• Property-backed lending: lender relies more on the security. Using property when your books are behind explains the trade-offs.

If you’d like to talk it through, check what your LTC paperwork could support. It takes about 60 seconds.

What should you do before you apply?

A short sequence that works:

1. Confirm the IR7 and IR7L are filed for the last two income years.
2. Confirm each owner’s personal return is filed and matches the IR7L allocation.
3. Get the reconciliation from your accountant.
4. Pull a Companies Office extract and a PPSR search so you know what the lender will find.
5. Check owners’ credit reports, since each owner may be assessed.
6. Decide who will be asked to guarantee, and get legal advice.

Check where you stand

Your company’s structure is a tax choice, and it shouldn’t make a loan harder than it has to be. We look at look-through companies regularly and know which lenders read the IR7L and the owners’ returns sensibly, and which ones want a full set before they’ll talk.

Enquiring takes about 60 seconds, and there’s no credit check when you first enquire, so your credit file stays as it is just for asking. We don’t send your details out to a pile of lenders. A real person reads your situation and calls you about the options that suit your paperwork. Please fill the form in accurately, including your ownership split and what’s filed, so we can match the right option the first time.

See if you qualify →