NEW ZEALAND GAZETTE

29 JULY

Interest Advantage per Unit = 2.675 × ($1,600 + 40,000)
= $0.107

(c) As the Gain in the value of the Unit is greater than the Interest Advantage, the maximum amount per Unit subject to the Qualified Accruals Rules will be the amount of the Interest Advantage, being $0.107 per Unit. As the Investor holds 4,000 Units, this equates to an amount of $428. The difference between the Gain and the Interest Advantage will be an amount which is solely attributable to an excepted financial arrangement.

(d) The Investor has not previously included any amounts as gross income under clause 6 (1) (d) of this Determination and so there is no amount to be deducted from the amount of $428. This amount will need to be included as gross income.

For the year ending 31 March 2000:

The coupon interest payment received by the Investor from the Issuer for the year ended 31 March 2000 will be $120. This equates to the balance of the investment in the Convertible Notes outstanding of $6,000 at interest of 2% per annum. This will be gross income.

(a) The Gain in the value of the Unit will be the current market value of $1.25 less the original cost of $1.00. Therefore, the Gain on a per Unit basis is $0.25.

(b) The Interest Advantage per Unit at the end of the second year is calculated using the following formula:

Interest Advantage per Unit = SR - R × Σ (Iₜ + Uₜ)
R

In this case, the formula will become:

Interest Advantage per Unit = 2.675 × ($1,600 + 40,000) ÷ ($1,200 + 40,000)
= $0.18725

(c) As the Gain in the value of the Unit is greater than the Interest Advantage, the maximum amount per Unit subject to the Qualified Accruals Rules will be the amount of the Interest Advantage, being $0.18725. As the Investor holds 4,000 Units, this equates to an amount of $749. The difference between the Gain and the Interest Advantage will be an amount which is solely attributable to an excepted financial arrangement.

(d) The Investor has not previously included as gross income under clause 6 (1) (d) of this Determination an amount of $428 and so this amount will need to be deducted from the amount of $749. The amount to be included as gross income will be $321.

For the year ending 31 March 2001:

The coupon interest payment received by the Investor from the Issuer for the year ended 31 March 2001 will be $80. This equates to the balance of the investment in the Convertible Notes outstanding of $4,000 at interest of 2% per annum. This will be gross income.

(a) The Gain in the value of the Unit will be the current market value of $1.35 less the original cost of $1.00. Therefore, the Gain on a per Unit basis is $0.35.

(b) The Interest Advantage per Unit at the end of the second year is calculated using the following formula:

Interest Advantage per Unit = SR - R × Σ (Iₜ + Uₜ)
R

In this case, the formula will become:

Interest Advantage per Unit = 2.675 × ($1,600 + 40,000) ÷ ($1,200 + 40,000)
= $0.24075

(c) As the Gain in the value of the Unit is greater than the Interest Advantage, the maximum amount per Unit subject to the Qualified Accruals Rules will be the amount of the Interest Advantage, being $0.24075. As the Investor holds 4,000 Units, this equates to an amount of $963. The difference between the Gain and the Interest Advantage will be an amount which is solely attributable to an excepted financial arrangement.

(d) The Investor has previously included as gross income under clause 6 (1) (d) of this Determination amounts of $428 and $321 so these amounts will need to be deducted from the amount of $963. The amount to be included as gross income will be $214.

For the year ending 31 March 2002:

The coupon interest payment received by the Investor from the Issuer for the year ended 31 March 2002 will be $40. This equates to the balance of the investment in the Convertible Notes outstanding of $2,000 at interest of 2% per annum. This will be gross income.

(a) The Gain in the value of the Unit will be the current market value of $1.50 less the original cost of $1.00. Therefore, the Gain on a per Unit basis is $0.50.

(b) The Interest Advantage per Unit at the end of the second year is calculated using the following formula:

Interest Advantage per Unit = SR - R × Σ (Iₜ + Uₜ)
R

In this case, the formula will become:

Interest Advantage per Unit = 2.675 × (($1,600 + 40,000) ÷ ($1,200 + 40,000) + ($800 + 40,000) ÷ ($400 + 40,000))
= $0.2675

(c) As the Gain in the value of the Unit is greater than the Interest Advantage, the maximum amount per Unit subject to the Qualified Accruals Rules will be the amount of the Interest Advantage, being $0.2675. As the Investor holds 4,000 Units, this equates to an amount of $1,070. The difference between the Gain and the Interest Advantage will be an amount which is solely attributable to an excepted financial arrangement.

(d) The Investor has previously included as gross income under clause 6 (1) (d) of this Determination amounts of $428, $321 and $214 so these amounts will need to be deducted from the amount of $1,070. The amount to be included as gross income will be $107.

The distribution of $1,000 (including withholding tax) received by the Investor from the Unit Trust in respect of the Units held on 31 March 2002 is solely attributable to an excepted financial arrangement. Therefore, it does not have to be considered under the Qualified Accruals Rules, but is gross income as being a dividend.

As can be seen through the two examples, the total amount which is included as gross income is the same between the two Investors, except that the cash basis holder does not have to include the amount until realisation through making a base price adjustment.