3224

NEW ZEALAND GAZETTE

No. 131

payment, with the discount to the purchase price representing interest payable by the seller; or

• a loan from the seller to the buyer in the case of a deferred settlement, with the additional amount required by the seller representing interest payable by the buyer.

(b) In the case of a foreign currency ASAP, there can be another reason for the difference between the NZ$ value of the core acquisition price and the NZ$ value of the price paid by the buyer to the seller. That is that different exchange rates could be used to convert these amounts into NZ$. The price must be converted into NZ$ using the spot exchange rate on payment date, while the core acquisition price is converted into NZ$ using the forward exchange rate from the contract date to either the date of payment or the date of transfer of the property. If the exchange rates are different, then there will be a difference between the NZ$ value of the core acquisition price and the NZ$ value of the price, even if the amounts are identical when determined in the foreign currency.

(4) Regardless of why it arises, this difference will be recognised:

• under section EH 1(5) of the Act, if you are a party to the ASAP at the end of an income year, by way of an allocation of income or expenditure to that income year;

• under the base price adjustment in section EH 4 of the Act, when the ASAP matures or is transferred by you.

(5) Section OB 7(1) deals with the calculation of the core acquisition price in the case of a foreign currency ASAP. It provides that the lowest price is the lowest price the parties would have agreed to in the foreign currency, converted into NZ$ using:

• the forward exchange rate, on the contract date, for exchange of the foreign currency into NZ$ on the rights date (this is the date on which first rights in the property pass to the buyer, and will often be the date on which goods are delivered) under the foreign currency ASAP (Rate A); or

• the forward exchange rate, on the contract date, for exchange of the foreign currency into NZ$ on the final payment date under the foreign currency ASAP (Rate B); or

• such other rate as is approved by the Commissioner by determination.

What this determination does

(6) This determination approves the adoption of three alternative exchange rates for converting the foreign currency lowest price into NZ$. This is in accordance with paragraph (c) of section OB 7(1) (which clarifies the calculation of the ‘core acquisition price’ in the case of a foreign currency ASAP) and section 90(1)(k) of the Tax Administration Act 1994. The determination also prescribes the method you must use to calculate income or expenditure from a foreign currency ASAP under section EH 1(5). The method you must use depends on the exchange rate you have used. The rates approved by this determination are:

• Spot rate on the rights date (Rate C). The effect of using this rate is that currency fluctuations between the rights date and the payment date will give rise to income or expenditure under the accrual rules. This rate can only be used for ASAPs which are for trading stock (excluding land or shares). If you use this rate you must apply Method C to calculate income or expenditure from the ASAP under section EH 1(5).

• Spot rate on the contract date (Rate D). The effect of using this rate is that currency fluctuations between the contract date (the date on which you enter into the ASAP) and the payment date will give rise to income or expenditure under the accrual rules. This rate can only be used for ASAPs which are for trading stock (excluding land or shares). If you use this rate you must apply Method D to calculate income or expenditure from the ASAP under section EH 1(5).

• Spot rate on payment date (Rate E). The effect of using this rate is to ensure that foreign currency fluctuations do not give rise to accrual income or expenditure under the foreign currency ASAP. You can only use Rate E if your annual gross income is less than $2,500,000 in the income year you become a party to the ASAP. In calculating that amount, you should exclude income from foreign currency ASAPs not completed at balance date. As an anti-avoidance measure, in calculating the $2,500,000 you must also take into account the annual gross income of associated persons. If you use this rate you must apply Method E to calculate income or expenditure from the ASAP under section EH 1(5).

(7) The NZ$ value of the foreign currency lowest price is also the price at which the property is deemed to have been sold or acquired by you for income tax purposes (under section EH 8(2)). If you use Rate E and Method E, you may have to convert the relevant payments into NZ$ using the spot rate at the first balance date following acquisition of the property. This ensures that the price can be established in the year the property is transferred to you.

2. Reference—This determination is made under paragraphs (c) and (k) of section 90(1) of the Tax Administration Act 1994.

3. Scope

General

(1) Subject to (3), (4) and (5) below, this determination applies to the calculation of income or expenditure under any foreign currency ASAP with respect to which you either:

• become a party in your 1996-97 income year or a subsequent income year; or

• calculate the core acquisition price using section OB 7(1)(a),(b) or (c), under section EZ 10(2).

(2) Method A is available to all taxpayers for all foreign currency ASAPs if they use Rate A.

(3) Method B is available to all taxpayers who use Rate B, which may only be used if the period between the rights date and the settlement date (date of final payment) is not more than five years.

(4) Rates C and D, and Methods C and D

You may use rates C and D, and Methods C or D only if the property that is the subject of the ASAP is trading stock in relation to you, other than land or shares.

(5) Rate E and Method E

You may apply Rate E and Method E only if the aggregate of your gross income (as defined in the Act) and that of all associated persons, in the income year you became a party to the foreign currency ASAP, does not exceed $2,500,000. For this purpose, gross income should be adjusted by excluding any income from foreign currency ASAPs which are subject to section EH 1 in the income year.

(6) Where both this determination and Determination G9A could apply to an ASAP, you should apply this determination, and not Determination G9A to the ASAP. You may however apply G9A to a loan which is part of the ASAP (see paragraph 6(4)).

4. Principle—(1) Under the qualified accrual rules a foreign currency ASAP gives rise to income or expenditure