NEW ZEALAND GAZETTE

No. 62

1410

• dates in relation to the forward contract when you become a party to the contract.

• the base currency payments in relation to the forward contract consist of:

  (a) the base currency value of the payment or receipt, if any, made in consideration of entering into the contract;

  (b) the base currency value of the non-base currency payment to be made under the contract valued at the forward rate; and

  (c) the base currency value of the non-base currency payment to be made under the contract valued at the contract rate.

• convert the expected base currency payments, where the base currency is not NZD, into expected NZD payments on the basis of forward rates available at the time you become a party to the forward contract.

• spread the expected NZD net amount over the term of the forward contract.

• calculate the gross income or expenditure of a forward contract entered into before the income year you elect to use this determination as set out above, except that you must:

  (a) use actual NZD payments up to the income year you elect to use this determination and expected NZD payments for the remaining term of the financial arrangement in determining the expected component of the gross income or expenditure; and

  (b) use the relevant forward rates at the end of the income year you elect to use this determination for the purpose of calculating the expected NZD payments.

• perform the base price adjustment under section EH 4 of the Act when the forward contract you are party to matures or is disposed of. This adjustment contains the unexpected component of the gross income or expenditure of the forward contract.

How do I elect to use the method outlined in this determination?

You may elect to use this determination by returning your gross income or expenditure on the basis of this determination for the 1998–1999 income year, or the 1999–2000 income year, or in the first income year in which you become a party to any forward contract that is within the scope of this determination.

In the income year you elect to use this determination to calculate gross income or expenditure from a forward contract entered into before the income year, you must perform a transitional adjustment calculation. This determination provides for a transitional adjustment calculation that is comparable to Determination G25: Variations in the Terms of a Financial Arrangement.

How do I calculate the transitional adjustment?

The transitional adjustment must be made in the income year you elect to use this determination. The transitional adjustment calculation must be made for each forward contract entered into before the income year you elect to use this determination. It requires that you treat the difference between the total amount that would have been gross income or expenditure calculated as described in this determination and the total amount actually recognised over the previous income years, as gross income or expenditure in the income year of the adjustment.

How is income or expenditure calculated in the year the forward contract 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.

If you are a party to a forward contract, you are both a vendor and a purchaser. As such, you are a holder under the definition of “holder” in section OB 1 of the Act. This categorisation is important for the purpose of calculating income or expenditure in accordance with section EH 4 of the Act.

2. Reference

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

3. Scope

(1) This determination applies to the calculation of gross income or expenditure from a forward contract for foreign exchange and commodities.

(2) This determination will not apply to—

(a) A futures contract;

(b) A security arrangement;

(c) A forward contract for foreign exchange and commodities where the forward rates of the currency cannot be determined; or

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

Determination G19: Exchange Traded Option Contracts;

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

Determination G21: Discounted Value of Amounts Payable in Relation to Deferred Property Settlements 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 a forward contract within sub-paragraphs (1) and (2) above; and

(b) 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 sub-paragraphs (1) and (2) above; and

(c) Determination G94: 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 the scope of Determination G9B: Financial Arrangements that are Denominated in a Currency or Commodity other than New Zealand Dollars: An Expected Value Approach.

(NOTE: A determination to which Determination G14A relates.)