10 JUNE 2004 NEW ZEALAND GAZETTE, No. 68

1615

At the first balance date
There are two components to the gross income or expenditure in relation to the floating rate financial arrangement for the New Zealand company. These include:

Expected component = $868 + $873 = $1,741; and
Unexpected component = −$10 + $69 = $59.
The gross income for the first balance date is therefore $1,800.

At the second balance date
The gross income consists of:

Expected component = $879 + $885 = $1,764; and
Unexpected component = −$83 – $78 = −$161.
The gross income for the second balance date is therefore $1,603.

At the final balance date
The New Zealand company has to perform a base price adjustment under section EH 47 of the Act:

consideration – income + expenditure + amount remitted

where:

consideration is the consideration paid or payable to the company less the consideration paid or payable by the company
= 775 + 846 + 687 + 685 + 608 + 16,250 − 14,263
= NZD $5,588

income is all the amounts of gross income derived in previous income years
= 1,800 + 1,603 = NZD $3,403

expenditure is expenditure incurred in previous income years
= 0

amount remitted is the amount of consideration remitted
= 0.

So the base price adjustment is:

consideration – income + expenditure + amount remitted
= 5,588 – 3,403 + 0 + 0
= NZD $2,185.
Since this is a positive amount, it is gross income of the New Zealand company in this income year.

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Determination G14B: Forward Contracts for Foreign Exchange and Commodities: An Expected Value Approach

This determination may be cited as “Determination G14B: Forward contracts for foreign exchange and commodities: an expected value approach”.

This determination cancels and replaces Determination G14A: Forward contracts for foreign exchange and commodities: an expected value approach.

1. Explanation—(which does not form part of the determination):

What is a forward contract for foreign exchange and commodities?
A forward contract for foreign exchange or commodities is a contract to buy or sell specified amounts of foreign currency or commodities at some future date at a specified contract rate. For example, a forward contract for foreign currency is a contract to buy or sell specified amounts of a currency at a future date at a price fixed (in terms of another currency) at the time the contract is entered into. Each party contracts simultaneously to sell one currency and purchase another currency. The same forward contract can always be viewed as either the sale of one currency or the purchase of the other currency. For example, a person who sells New Zealand dollars (called “NZD”) forward against purchase of United States dollars (called “USD”) can view the contract as either:

• the forward sale of NZD; or
• the forward purchase of USD.

A forward contract has characteristics that are very similar to a swap contract. In fact, swaps are often structured as a series of forward contracts. If you are a party to a swap, however, you may not apply this determination as swaps are subject to Determination G27. The only exception is a swap contract for fixed amounts, to be exchanged at a single fixed date. This type of swap is, in substance, a forward contract. Therefore, if you are a party to this type of forward contract, you have to apply this determination instead of Determination G27.

When do you use this determination?
You must use this determination for the 2003-04 income year and a forward contract for which this determination applies if:

• you are not a member of a group of companies and, on or before the day that is the earlier of 31 July 2004 and the end of your accounting period that corresponds to the 2003-04 income year, you give to the Commissioner notice in writing that you elect:
  (a) to use this determination; and
  (b) to use Determination G9C: Financial arrangements that are denominated in a currency other than New Zealand dollars: an expected value approach;