1604 NEW ZEALAND GAZETTE, No. 68 10 JUNE 2004

You must use this determination for an income year beginning after the 2004-05 income year and a financial arrangement for
which this determination applies if:

• you entered the financial arrangement after the date of this determination and were required to make a return of your
  income or expenditure for the 2004-05 income year on the basis of this determination, Determination G9B or
  Determination G14A: Forward contracts for foreign exchange and commodities: an expected value approach;
• you entered the financial arrangement before the date of this determination and you have made a return of your income or
  expenditure for an earlier income year and the financial arrangement on the basis of Determination G9B and are required
  under section 90 or sections 90AC and 90AE of the Tax Administration Act 1994 to make a return for the income year and
  the financial arrangement under this determination;
• you are not a member of a group of companies and, on or before the day that is the 63rd day of your accounting period that
  corresponds to the income year, you give to the Commissioner notice in writing that you elect:
  (a) to use this determination; and
  (b) to use Determination G14B: Forward contracts for foreign exchange and commodities: an expected value approach;
• you are a member of a group of companies and, on or before the earliest day that is the 63rd day of an accounting period
  that corresponds to the income year for a member of the group, the members of the group give to the Commissioner notice
  in writing of an election:
  (a) to use this determination; and
  (b) to use Determination G14B: Forward contracts for foreign exchange and commodities: an expected value approach.

You may not use this determination for an income year unless you are required to do so by the above paragraphs.

What methods can be used to calculate income or expenditure in relation to a financial arrangement that comes within the scope of this determination?

Expected Value Approach

This determination sets out an expected value approach to calculate gross income or expenditure from a financial arrangement
where any rights and obligations of the parties are expressed in a base currency other than NZD. This base currency might be a
foreign currency or a commodity. This expected value approach can only be used for financial arrangements within the scope
of this determination, which is narrower than Determination G9A: Financial Arrangements that are Denominated in a Currency
or Commodity other than NZD. If you are required to use this determination, you must not use Determination G9A for any
such financial arrangement, and you must not use Determination G14: Forward Contracts for Foreign Exchange and
Commodities for any forward contract within the scope of Determination G14B: Forward contracts for foreign exchange and
commodities: an expected value approach.

Mark to Spot Approach

You can use Determination G9A: Financial Arrangements that are Denominated in a Currency or Commodity other than NZD
to calculate gross income or expenditure of any financial arrangement within the scope of this determination if you are not
required to use this determination or Determination G14B: Forward contracts for foreign exchange and commodities: an
expected value approach.

Alternatively, you may use the mark to market method if you satisfy the requirements of section EH 1 (6) of the Act or the
market valuation method if you satisfy the requirements of section EH 36 of the Act.
You may also use a method allowed by the proviso to section EH 1 (6) of the Act or by section EH 38 (2) of the Act.

How do I use the method set out in this determination?

Under this method, the gross income or expenditure from a financial arrangement where the rights and obligations of the
parties are expressed in a base currency other than NZD is the total of an expected component and an unexpected component.

To apply this method to a financial arrangement for the income year in which you enter the financial arrangement, you must:

• determine the expected component by taking into account all the base currency payments and payment dates in relation to
  the financial arrangement when you become a party to the financial arrangement; and
• use the initial interest rate to calculate the base currency payments under a variable rate financial arrangement denominated
  in a base currency other than NZD, and assume that this rate will apply throughout the term of the financial arrangement;
  and
• translate the base currency payments into expected NZD payments on the basis of the forward rates available at the time
  you become a party to the financial arrangement; and
• spread the expected NZD net amount under the yield to maturity method and allocate it to each income year over the term
  of the financial arrangement on a daily basis; and
• measure the unexpected component at the end of each balance date as the difference between actual and expected NZD
  payments.

To apply this method for the first time to a financial arrangement for an income year after the income year in which you enter
the financial arrangement, you must calculate the gross income or expenditure of the financial arrangement as set out above,
except that you must:

• in determining the expected component of the gross income or expenditure, use actual NZD payments up to the income
  year for which you first use this determination for the financial arrangement and expected NZD payments for the remaining
  term of the financial arrangement; and
• in calculating the expected NZD payments, use the relevant forward rates as at the end of the income year for which you
  first use this determination for the financial arrangement.

You must also calculate a transition allowance for a financial arrangement to which you apply the method for the first time for
an income year that is after the income year in which you enter the financial arrangement.