1608

NEW ZEALAND GAZETTE, No. 68

10 JUNE 2004

USD means the currency of the United States of America

variable rate financial arrangement means a floating rate arrangement or a reviewable rate arrangement.

(3) All other terms used have the meaning given to them for the purpose of the Act.

6. Method—(1) Your gross income or expenditure in an income year from a financial arrangement under this determination
   is the total of:

(a) the expected component, calculated in accordance with subparagraphs (2) to (5); and

(b) the unexpected component, calculated in accordance with subparagraph (6).

(2) If the first income year for which you are required to apply this determination to a financial arrangement is the income year
in which you become a party to the financial arrangement, you must calculate the expected component for each income year of
the remaining term of the financial arrangement as at the time you become a party to the financial arrangement. The expected
component is calculated by first taking into account all base currency payments in relation to the financial arrangement.

(3) You must calculate the base currency payments of a variable rate financial arrangement denominated in a currency other
than NZD using the initial interest rate and assuming that this rate will apply throughout the term of the financial arrangement.

(4) You must convert the base currency payments into NZD using forward rates as at the time you became a party to the
financial arrangement.

(5) You must spread the expected NZD net amount using the yield to maturity method consistent with Determination G3 and,
where necessary, allocate it to the income year on the basis of Determination G1A. This will give the expected component for
each income year.

(6) You must calculate and recognise the unexpected component for each income year. The unexpected component is the
difference between the actual NZD value of the payments during the year and the expected NZD value of those payments as
calculated under subparagraph (4).

(7) If the first income year for which you are required to apply this determination to a financial arrangement is after the income
year in which you entered the financial arrangement, and you have not been required to use Determination G9B for the
financial arrangement, you must follow the method set out in subparagraphs (1) to (6) to calculate gross income or expenditure
of the financial arrangement, except that:

(a) the NZD net amount to be spread under subparagraph (5) consists of:

(i) actual NZD payments that have occurred since you became a party to the financial arrangement until the end of
the first income year for which you must use this determination;

(ii) expected NZD payments in the remaining term of the financial arrangement; and

(b) the expected NZD payments in the remaining term of the financial arrangement must be calculated on the basis of the
forward rates available at the end of the first income year for which you must use this determination for the financial
arrangement.

Transitional adjustment for existing financial arrangements

(8) You must perform a transitional adjustment calculation for the first income year for which you must use this determination
to calculate gross income or expenditure of any financial arrangement if you entered the financial arrangement before the
income year and have not been required to apply Determination G9B to the financial arrangement. You must perform
the transitional adjustment calculation for each such financial arrangement in accordance with the following formula:

a – b – c + d

where:

a is the sum of all amounts that would have been income in respect of the financial arrangement from the time it was
entered into until the end of the income year, if this determination had applied from the time you became a party to the
financial arrangement

b is the sum of all amounts that would have been expenditure in respect of the financial arrangement from the time it was
entered into until the end of the income year, if this determination had applied from the time you became a party to the
financial arrangement

c is the sum of all income in respect of the financial arrangement since it was acquired until the end of the previous income
year

d is the sum of all expenditure in respect of the financial arrangement since it was acquired until the end of the previous
income year.

A positive net amount is gross income while a negative net amount is gross expenditure in the first income year for which you
must use this determination.

7. Examples—(1) A New Zealand investor holds a United States Treasury Bond on its balance date of 30 June 2005. The
   bond has a term of 5 years and bears 10% interest payable semi-annually on 1 September and 1 March. It has a face value of
   USD $10,000,000. The bond was purchased at issue for USD $8,300,000.00 and matures on 1 September 2009.

(2) The New Zealand investor has to calculate the expected NZD net amount on the basis of forward rates available at the time
it becomes a party to the financial arrangement. It then has to spread and allocate the expected NZD net amount to the income
years over the term of the financial arrangement in accordance with Determination G3 and Determination G1A. In each of
those income years, the investor also has to determine the unexpected component of the gross income or expenditure. The
unexpected component is measured as the difference between the actual NZD payments and the expected NZD payments.

Further examples are provided in the Schedule.

Signed on the 3rd day of June 2004.

ROBIN OLIVER, General Manager, Policy.