NEW ZEALAND GAZETTE

No. 3

Gazette (except where it was entered into pursuant to a binding contract entered into before that date), where:

(a) all payments under the swap are expressed in a currency or two (but not more than two) different currencies; and

(b) either—

(i) a notional or actual principal is specified in the swap contract in relation to each side of the swap; or

(ii) a notional principal is implicit in the computation of the cashflows payable by the parties in relation to each side of the swap, and

(c) the Principal Amount relating to each side of the swap is fixed in terms of the relevant currency; and

(d) there are no payments made, or to be made, under or in relation to the swap other than payments that are:

(i) actual payments of the Principal Amount made on either or both of the Effective Date and the Maturity Date that form part of a Principal Exchange;

(ii) payments made during the term of the swap of amounts calculated by applying the Agreed Rate to the Principal Amount;

(iii) a payment made on the Effective Date of any Compensatory Amount;

(iv) a payment made on the Effective Date of any Fee Amount that is less than the Principal Amount; or

(v) a combination of any two or more of the payments referred to in paragraphs (i) to (iv) above.

4. Principle

(1) Subject to sub-clauses 4 (3) and 4 (5) below, if you are a party to a swap to which this Determination applies, calculate income derived or expenditure incurred as if each side of the swap was a separate, simultaneous and mutual loan between you and the other party.

Then apply the accrual provisions of the Act and determinations that would be applicable to such loans to calculate the income derived or expenditure incurred by you.

(2) Take fees payable in relation to the swap that qualify as Fee Amounts (reduced by the amount of item z in section 64BA (2) or 64BA (3) of the Act) into account as cashflows subject to the yield to maturity or other method of calculating income or expenditure applicable under the accrual provisions or determinations made thereunder. Apply them to either one of the two loans the swap is deemed to comprise, at your option. Accord the same treatment to any payment made by one party to the swap to the other that is intended to compensate the latter for a difference in the values of the anticipated cashflows under the swap, and to any consideration paid in connection with the assignment of the swap by or to the assignee.

(3) If your business comprises dealing in swaps, or if you are a party to a swap that constitutes a forward or future contract for foreign exchange, you may use a mark to market method to calculate the income derived or expenditure incurred under a relevant swap provided that the requirements of section 64C (4) of the Act are satisfied.

(4) For the purposes of sub-clause 4 (3) above, a mark to market method is one that reflects the revaluation of the swap at its current market value. You must compute such market value by reference to or by interpolation from one or more rates or yields, published electronically by Reuters New Zealand Limited or Telerate New Zealand Limited on the relevant date, that are:

(a) relevant (as regards quality, term and currency) to the particular swap or the relevant side of it; and

(b) quoted with respect to markets that have been approved by the Commissioner by Determination.

(5) If you are a party to a swap that involves a spot exchange at the current spot rate and a future exchange of fixed amounts at a single fixed date, and you do not use a mark to market method under section 64C (4), use the method specified in Determination G14: Forward Contracts For Foreign Exchange And Commodities.

5. Interpretation

(1) In this determination, unless the context otherwise requires—

Expressions used have the same meanings as in the Act, and where a word or expression is given a particular meaning for the purposes of sections 64B to 64M of the Act, it shall have the same meaning as in the said sections 64B to 64M,

“Accrual provisions” means sections 64B to 64M of the Act;

“Accrual rules” means the principles of calculating income and expenditure for income tax purposes under the accrual provisions and determinations made thereunder;

“Acquisition Date”, in relation to the assignee of a swap, is the date upon which that person becomes a party to the swap;

“Agreed Rate” means the interest rate or other indicator rate that is, according to the terms of the swap, to be applied to the Principal Amount in calculating payments to be made under the swap, and includes a floating rate where the parties have agreed the basis upon which that rate is to be identified or computed for the purposes of the swap;

“Approved Exchange” has the same meaning as in Determination G7C: Futures and Options Markets;

“Assignment Amount” means any consideration paid by or to the assignee in connection with the assignment of a swap;

“Compensatory Amount” means a payment made by one party to a swap to the other that is intended to compensate the latter for a difference in the values of the anticipated cashflows under the swap;

“Currency Swap” means any swap under which the parties agree to exchange a specified amount of currency, on a notional or physical basis, at an agreed rate of exchange;

“Deemed Borrower” means, in relation to one side of a swap, the party who is required to make the payments under the deemed loan relating to that side of the swap calculated by applying an Agreed Rate to the Principal Amount in relation to that side of the swap;

“Deemed Lender” means, in relation to one side of a swap, the party who is entitled to receive the payments under the deemed loan relating to that side of the swap calculated by applying an Agreed Rate to the Principal Amount in relation to that side of the swap;

“Effective Date” means the date upon which the swap commences to operate (being the first day of the period in respect of which calculations under the swap are to be applied) or, in relation to the assignee of a swap, the Acquisition Date;

“Fee Amount” means any fee or similar amount paid by or by either of the parties to a swap for, or in connection with, the arrangement, negotiation or implementation of that swap (whether the same is paid by or to the other party or by or to a third person);

“Interest and Currency Swap” means any swap under which the parties agree to exchange interest payments in one currency for interest payments in another currency where the payment streams also differ with respect to the basis upon which interest amounts are