27 FEBRUARY NEW ZEALAND GAZETTE 405

relation to the FundCo Agreement (as calculated pursuant to this Determination and under sections EH 1 to EH 9 of the Act) will be equivalent on an annual basis to the income derived by FundCo with respect to the TradeCo Agreement and the Deposit (as calculated pursuant to this Determination and under sections EH 1 to EH 9 of the Act) and vice versa.

Determination

1.5 BNZ has applied for a Determination that:

(a) The agreements for sale between the investors and FundCo (represented by the notes) are treated under the accruals regime as follows:

(i) For investors who are not cash basis holders the agreement must be marked in accordance with the value of the agreement (as calculated in accordance with this Determination) at each balance date. The change in value together with any payments received during that year will be income to the investors (or expenditure, as the case may be).

However, for this purpose, if the market value of the agreement at a balance date has fallen below the amount of the capital floor (as defined in this Determination), the market value at that balance date will be deemed to be equal to the capital floor. The amount of the capital floor, at any particular balance date, will be calculated as being equal to the amount originally paid on entry at issue of the agreement for sale, together with accrued interest calculated up to that balance date, according to the yield to maturity method, as if the investor were to receive at settlement date only the capital guaranteed amount under the agreement for sale.

(ii) FundCo will account for the agreements with the investors by marking the agreements to their value (as calculated in accordance with this Determination) at each balance date. The change in value together with any payments made by FundCo during that year will constitute expenditure (or income, as the case may be).

(b) Income from the deposit issued by BNZ to FundCo will be required under the accruals regime to be returned by FundCo on a yield to maturity basis.

(c) The agreement for sale between FundCo and TradeCo is treated under the accruals regime as follows:

(i) TradeCo will account for the agreement on a basis that has regard to market valuation. The change in value together with any payments made by TradeCo during an income year will be expenditure or income (as the case may be);

(ii) FundCo will similarly account for the agreement on a basis that has regard to market valuation. The change in value together with any payments made by TradeCo to FundCo during an income year will constitute accrual income (or, expenditure, as the case may be).

(d) The futures contracts, derivative contracts and foreign exchange contracts to which TradeCo is a party, will be required to be accounted for by TradeCo under the accruals regime using the method specified in this Determination that has regard to market valuation.

(e) The guarantee entered into between TradeCo and BNZ will be accounted for by TradeCo using a straight-line method.

1.6 This Determination applies to all the financial arrangements mentioned in paragraph 1.2 and is to provide the method for recognition of income and expenditure by parties to each of those financial arrangements (other than investors who are cash basis holders) in accordance with the Act.

2. Reference

2.1 This Determination is made pursuant to section 90 (1) (c) of the Tax Administration Act 1994.

3. Scope of the Determination

3.1 This Determination shall apply to the following arrangements (a description of which is set out below):

(a) the FundCo Agreements;

(b) the Deposit;

(c) the TradeCo Agreement;

(d) the futures contracts, derivative contracts and foreign exchange contracts to which TradeCo is a party;

(e) the Guarantee.

3.2 This Determination is restricted in scope to FundCo, TradeCo and Investors who are subject to the accruals rules and are not cash basis holders.

FundCo Agreements

3.3 Parties: Investor

FundCo

3.4 FundCo will enter into a number of FundCo Agreements with Investors. Each FundCo Agreement will provide that FundCo agrees to sell a stated percentage of its assets, with settlement to occur at a stated time after the date of entry into the FundCo Agreement.

3.5 Each FundCo Agreement will be represented by a Note issued by FundCo to an Investor.

3.6 The principal terms of each FundCo Agreement will be that:

(a) on payment of the purchase price, each Investor purchases a proportion of FundCo’s assets;

(b) settlement of the FundCo Agreement will take place on the Settlement Date;

(c) instead of a transfer of the actual assets held by FundCo on the Settlement Date, FundCo must pay to each Investor an amount in cash equal to the value of the assets purchased under the FundCo Agreement in satisfaction of FundCo’s obligations on settlement;

(d) each FundCo Agreement will be supported by a guarantee from BNZ, so that on Settlement Date an Investor will receive, at least, an amount equal to the purchase price plus an amount equal to an agreed percentage of the purchase price, such percentage to be set prior to Issue Date;

(e) FundCo will also make FundCo Variable Payments to an Investor on each anniversary of the Issue Date until the Settlement Date. The aggregate FundCo Variable Payments made on such an anniversary date will:

(i) on the first anniversary of the Issue Date, be equal to 25 percent of the increase in the value of the TradeCo Agreement during the 12 month period prior to the relevant TradeCo Variable Payment being made (such increase being adjusted for any payments made to Investors by way of early settlement); and

(ii) on every other anniversary of the Issue Date, be equal to 25 percent of the extent to which the value of the TradeCo Agreement prior to making the TradeCo Variable Payment, as at the date of that anniversary, exceeds the previous highest value of the TradeCo Agreement prior to the making of the relevant TradeCo Variable Payment (such increase being adjusted for any payments made to Investors by way of early settlement);

Provided that no FundCo Variable Payment is to be made on any such an anniversary day if: