NEW ZEALAND GAZETTE

No. 34

At balance date the expense for the period must be revalued to reflect exchange rate movements and subsequent gains or losses on the transaction using Determination G9A:

Closing tax book value is

a = e + f + g – h – i where,

e = 0
f = 0
g = 0
h = US$385,073 (the acquisition price)
i = US$4,265 (expense incurred during year)

Closing tax book value (CTBV) is therefore –US$389,338

Expenditure for the year is calculated in New Zealand dollars using the formula in Determination G9A of a + b – c – d where,

a = –NZ$622,941 (CTVB/spot rate at balance date)
b = NZ$611,227 (acquisition price/opening spot rate)
c = 0
d = 0

As the result is negative it is deemed to be expenditure incurred of NZ$11,714.

At the end of the financial arrangement on the 14 July 1989 the base price adjustment – a – (b + c) is calculated where,

a = total consideration paid by issuer
= total amount of credit/closing spot rate
= NZ$625,000 (US$400,000/0.6400)
b = acquisition price/opening spot rate
= NZ$611,227
c = total expenditure incurred previous year
= $11,714
bpa = NZ$2,059

As this is positive it is expenditure incurred in the 1990 income year.

Total expenditure claimed in relation to the credit is:
NZ $(11,714 + 2,059) = NZ$13,773

(B) Calculation of interest rate where foreign interbank interest rate is not used.

The purchaser must calculate an implied foreign interest rate by the steps below.

Convert payment US$400,000 using FWD Rate to NZ dollars.
Forward rate ascertained 17 February 1989 in regard payment in 147 days is USD/NZD .6200 . $400,000/ .6200 = NZ $645,161.

Assume that the yield for NZ bank bills of a 147 day term is 13.5% per annum, ascertained at 17 February 1989 in accordance with Determination G13: Prices of Yields.

Foreign currency spot rate ascertained in accordance with Determination G6A: Foreign Currency Rates, as at 17 February 1989 is USD/NZD .6300

Method A of Determination G10: Present Value Calculation Methods, is applied to calculate the present value as at 17 February 1989 (the “specified date”) as follows—

A = 0
B = NZ$645,161 (payable by the issuer or receivable by the holder)
C = 0 (payable by the issuer or receivable by the holder)
R = 13.5% (the specified rate)
N = 365/147
= 2.48299
F = 1 + R
100 × N
= 0.05437

present value = A + B – C
1 + F
= NZ$611,892

This amount is converted into US dollars using the spot rate on 17 February 1989, NZ$631,892 X .6300 = US$385,492.

The foreign interest rate is that which results in the US$400,000 when discounted being equal to US$385,492. The rate calculated in accordance with Determination G3: Yield to Maturity Method, is 9.344% per annum. The present value as at supply date, calculated using this interest rate in the same way as shown in example (A), will give NZ$611,892 as above. The importance of deriving this foreign currency interest rate is that it allows the calculation of expenditure using Determination G9A, as above.

This determination is signed by me on the 9th day of February in the year 1990.

R. D. ADAIR,
Deputy Commissioner of Inland Revenue.

go2595

Determination G16A: Discounted Value of Amounts Payable in Relation to Trade Credits Denominated in New Zealand Currency

This determination may be cited as “Determination G16A: Discounted Value of Amounts Payable in Relation to Trade Credits Denominated in New Zealand Currency”.

1. Explanation—(which does not form part of the determination).

(1) This determination rescinds and replaces Determination G16: Discounted Value of Amounts Payable in Relation to Trade Credits Denominated in New Zealand Currency made by the Commissioner on 10 July 1989. This determination differs from Determination G16: Discounted Value of Amounts Payable in Relation to Trade Credits Denominated in New Zealand Currency by—

(a) Requiring that the interest rate used to determine the discounted value of amounts payable in relation to a trade credit be ascertained as at the supply date of the specified goods or services rather than as at the date of entry into the trade credit (which can be difficult to determine); and

(b) Requiring the discounted value of the amounts payable to be used to calculate income derived or expenditure incurred in an income year (which is an extension made to the method for completeness).

(2) This determination provides the method to be used to calculate the core acquisition price for a trade credit under section 64BA (1) (b) (iii) of the Act where—

(a) The trade credit is not a short-term trade credit; and
(b) The amounts payable in respect of the trade credit are denominated in New Zealand dollars; and

(c) In relation to the trade credit all amounts payable and the date on which they are payable are known at the first balance date after supply date; and

(d) The term of the trade credit is known at the first balance date after supply date.

(3) A short-term trade credit, where payment is required within 63 days after supply of the specified goods or services, is exempted from the scope of the accrual provisions by the definitions in section 64B (1) of the Act.

(4) Any other trade credit is subject to the accrual provisions of the Act and relevant determinations. In such cases the core acquisition price must be determined as at the supply date of the specified goods or services.

(5) Sections 64BA (2) and (3) of the Act define acquisition price in terms of the core acquisition price, which is itself defined in section 64BA (1). Paragraphs (b) (i) and (iii) of that section provide two ways of determining the amount “u” which is required for calculating the core acquisition price. Where neither of these apply, paragraph (b) (iii) provides that “u” shall be “the discounted value of the amounts payable for the specified goods or services, as determined pursuant to a determination made under this section”.