458 NEW ZEALAND GAZETTE No. 22

Note an acquisition price of nil (for accrual purposes). Therefore, in this example “b” has a value of zero.

Income/Expenditure = a – (b + c)
= $12.00 – (0 + $6.59)
= $5.41

EXAMPLE B

On 13 November 1992 a convertible Note is issued for $100 with an interest coupon of 10% payable half-yearly in arrears, with the exception of the first period which is 5 months. The Note is mandatorily convertible on 13 October 1994 to 10 shares in the issuing company.

The market value of each share at issue date is $9.00. By conversion date this has risen to $15.00.

Both the issuer and the holder use a 31 March balance date and apply Determination G1A on a 365 day basis when apportioning daily income and expenditure.

The coupon interest payments are made as follows:

13 April 1992 .. .. .. $4.15
13 October 1992 .. .. .. $5.00
13 April 1993 .. .. .. $5.00
13 October 1993 .. .. .. $5.00

(a) Year ended 31 March 1993

Apportionment of coupon payment due on 13/4/93

There are a total of 151 days in the first period. Of these, 138 are in the year ended 31 March 1993.

138/151 × $4.15

Income/Expenditure $3.79

(b) Year ended 31 March 1994

Apportionment of Coupon Payment due on 13/4/93

There are a total of 151 days in the first period. Of these, 13 are in the year ended 31 March 1994.

13/151 × $4.15 $0.36

Coupon Payment due on 13/10/93 $5.00

Apportionment of coupon payment due on 13/4/94

There are a total of 182 days in the period between payments. Of these, 169 are in the year ended 31 March 1994.

169/182 × $5.00 $4.64

Income/Expenditure $10.00

(c) Year ended 31 March 1995

As the Note matures in this year the base price adjustment (section 64F of the Act) is required. The formula a – (b + c) is applied:

a = the sum of all amounts paid ($19.15)
b = acquisition price
c = income/expenditure in previous years ($13.79)

As all amounts other than the coupon payments are attributable to the underlying shares, the price and share market values can be ignored for the purposes of calculating income and expenditure. This effectively gives the Note an acquisition price of nil (for accrual purposes), hence in this example “b” has a value of zero.

Income/Expenditure = a – (b + c)
= $19.15 – (0 + 13.79)
= $5.36

EXAMPLE C

The original holder of the Note described in Example B sells the Note on 20 December 1992, for $120, to a new holder who holds the Note to maturity. The sale of the Note takes place part way through an interest period, so it is necessary to apportion the coupon interest payment between the seller and the purchaser.

The coupon interest payment for this period amounts to $4.15. Using a straight-line apportionment, $1.01 of the $4.15 is attributable to that portion of the period ending 20 December 1992 during which the Note is owned by the original holder. ($4.15 × 37/151). There are 151 days in the coupon period, and there are 37 days from the beginning of the period until the day that the Note is sold.) This amount of $1.01 is income to the original holder and acquisition price to the new holder. The original holder would be considered to have sold the equity portion of the convertible Note for $118.99.

(a) Income for the Original Holder: Year ended 31 March 1993

Since this is the “final Year” of the arrangement from the point of view of the original holder, the base price adjustment is applied, using the following values:

a = the sum of all amounts paid ($1.01)
b = acquisition price
c = income/expenditure in previous years ($0)

Income = a – (b + c)
= $1.01 – (0 + 0)
= $1.01

(b) Income for the New Holder: Year ended 31 March 1993

Apportionment of coupon payment 13/4/93

There are a total of 151 days in the first period. Of these, 138 are in the year ended 31 March 1993.

138/151 × $4.15 $3.79

From this, the holder can subtract the acquisition price

Income/Expenditure $2.78

(b) Year ended 31 March 1993

As for Example B

Income $10.00

(c) Year ended 31 March 1994

As the Note matures in this year the base price adjustment (section 64F of the Act) is required. The formula a – (b + c) is applied:

a = the sum of all amounts paid ($19.15)
b = acquisition price ($1.01)
c = income/expenditure in previous years ($12.78)

Income/Expenditure = a – (b + c)
= $19.15 – ($1.01 + $12.78)
= $5.36

This determination is signed by me on the 22nd day of January in the year 1993.

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

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Determination G7C: Futures and Options Markets

This determination may be cited as “Determination G7C: Futures and Options Markets”.

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

(1) This determination rescinds and replaces Determination G7B: New Zealand Futures and Options Markets and Determination G18: International Futures and Option Markets, both of which were made by the Commissioner on 4 December 1989. This determination differs from Determinations G7B and G18 by amalgamating the two, updating the terminology used in relation to the New Zealand Futures & Options Exchange and members thereof, adding to the list of approved markets on that exchange and to the list of approved overseas futures and options markets, modifying the approved sources of information in respect of those overseas