7 MAY

NEW ZEALAND GAZETTE

1407

How is income or expenditure calculated in the year the financial arrangement matures or is disposed of?

Regardless of which method you choose to use, you must calculate income or expenditure under the base price adjustment in section EH 4 of the Act.

Miscellaneous Issues

This determination requires that where a financial arrangement involves or is expressed in more than one currency or commodity, each separate currency or commodity tranche is to be treated as a separate financial arrangement.

Where a facility provides for the rollover of a financial arrangement, the financial arrangement matures when the rollover occurs. Section EH 4 of the Act applies in the income year the rollover occurs. Any payment arising from the rollover of a financial arrangement will be taken into account under section EH 4 of the Act unless the payment is related to a separate financial arrangement.

2. Reference

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

3. Scope

(1) This determination applies to the calculation of gross income or expenditure from a financial arrangement, to the extent that any right or obligation under the financial arrangement is fixed or otherwise determined in a currency other than NZD and is not fixed in NZD. The payment dates under the financial arrangement must be known not later than the first balance date of the issuer or holder after issue or acquisition.

(2) This determination does not apply to—

(a) A futures contract;

(b) A security arrangement;

(c) A financial arrangement denominated in a currency where the forward rates of the currency cannot be determined; or

(d) Any financial arrangements covered by the following determinations—

Determination G14: Forward Contracts for Foreign Exchange and Commodities;

Determination G19: Exchange Traded Option Contracts;

Determination G20: Discounted Value of Amounts Payable in Relation to Trade Credits Denominated in a Foreign Currency;

Determination G21A: Agreements for Sale and Purchase of Property Denominated in Foreign Currency: Discounted Value of Amounts Payable;

Determination G27: Swaps;

Determination G29: Agreements for Sale and Purchase of Property Denominated in Foreign Currency: Exchange Rate to Determine the Acquisition Price and Method for Spreading Income and Expenditure;

except as specifically allowed by those determinations.

(3) You may use this determination if

(a) an election to use this determination is made by returning your income or expenditure on the basis of this determination in the 1998–1999 income year or the 1999–2000 income year or the first income year in which you become a party to the financial arrangements within sub-paragraphs (1) and (2) above; and

(b) Determination G9A: Financial Arrangements that are Denominated in a Currency or Commodity other than New Zealand Dollars is not used to calculate gross income or expenditure of any financial arrangement that is within sub-paragraphs (1) and (2) above; and

(c) Determination G14: Forward Contracts for Foreign Exchange and Commodities is not used to calculate gross income or expenditure of any forward contract that is within the scope of Determination G14A: Forward Contracts for Foreign Exchange and Commodities: An Expected Value Approach.

(NOTE: A determination to which Determination G9B refers may be changed or rescinded by a new determination made by the Commissioner. In such a case, a reference to the old determination is extended to the new determination.)

4. Principle

(1) If you are a party to a financial arrangement to which this determination applies, the gross income or expenditure in respect of the financial arrangement is calculated by taking into account all amounts arising from the fluctuations of exchange rates or commodity prices.

(2) The gross income or expenditure from the financial arrangement is the total of an expected component and an unexpected component. You must measure the expected component at the time you become a party to the financial arrangement. You must also recognise the unexpected component when it is realised.

(3) To measure the expected component you must convert the base currency payments into expected NZD payments on the basis of forward rates at the time you become a party to the financial arrangement, and spread the expected NZD net amount over the term of the financial arrangement.

(4) You must measure the unexpected component as the difference between the actual NZD payments and the expected NZD payments.

(5) You may use this determination to calculate gross income or expenditure of financial arrangements entered into before the income year in which you made the election and in respect of which section EH 4 of the Act does not apply. You must then use this determination for all such financial arrangements. In this case, you must follow the principle set out above except that you must calculate the expected NZD net amount using actual NZD payments up to the end of the income year in which you elect to use this determination and the forward rates at the end of that income year.

Transitional Adjustment

(6) You must perform the transitional adjustment calculation in the income year in which you elect to use this determination to calculate gross income or expenditure of any financial arrangement entered into before that income year.

(7) This adjustment ensures that the gross income or expenditure up to the end of the income year in which you elect to use this determination is equal to that that would have been returned if the actual NZD payments and the forward rates, as described in sub-paragraph (5), and this determination had been used since you become a party to the financial arrangement.

5. Interpretation

In this determination: