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New Zealand law explained for everyone

Income Tax Act 2007

Income - Terminating provisions

CZ 3: Exchange variations on 8 August 1975

You could also call this:

“Rules for foreign currency loans and exchange rate changes in business”

This law applies if you run a business in New Zealand and either get or give a loan in multiple parts. It also applies if the value of different currencies changes, affecting how much you need to pay back or receive.

If the value of currencies changes and you make or lose money because of it, that amount is counted as income or a loss for your business. You can claim the loss as a deduction on your taxes.

Each part of the loan is treated as separate, unless the loan agreement says otherwise. When you pay back the loan, it’s assumed you’re paying off the earliest parts first.

This law doesn’t apply to certain financial arrangements that have their own rules.

The law defines some terms:

An ‘exchange variation’ is when the value of currencies changes between when you make a payment and either 8 August 1975 or when you first got the loan, whichever is later.

A ‘loan’ means money borrowed or lent in a foreign currency. For loans between 1974 and 1985, they needed special approval. After 1985, they just need to be in a foreign currency.

This text is automatically generated. It might be out of date or be missing some parts. Find out more about how we do this.

View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1513498.

Topics:
Money and consumer rights > Taxes
Money and consumer rights > Banking and loans
Business > Industry rules
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Part C Income
Terminating provisions

CZ 3Exchange variations on 8 August 1975

  1. This section applies when—

  2. a person carrying on a business in New Zealand—
    1. receives a loan in 2 or more instalments for the purposes of the business; or
      1. makes a loan in 2 or more instalments in the course of carrying on the business; and
      2. an exchange variation arises in relation to the whole or partial repayment of the loan; and
        1. the person derives an amount or incurs a loss through the exchange variation.

          1. The amount derived is income of the person and the loss incurred is a deduction that they are allowed.

          2. For the purposes of this section, unless the terms of the loan expressly provide otherwise,—

          3. each instalment is treated as a separate loan; and
            1. repayments are applied so that the separate loans are repaid in the order in which they were received.

              1. This section does not apply to a financial arrangement to which the financial arrangements rules apply.

              2. In this section,—

                exchange variation, for the repayment of some or all of the loan, excluding interest, means a variation by virtue of a fluctuation in the value of the currency or currencies of 1 or more countries other than New Zealand in relation to New Zealand currency, that occurs between—

                1. the amount of the repayment expressed in New Zealand currency at the time at which the repayment was made; and
                  1. the amount expressed in New Zealand currency that would have been required to make that repayment on or at the later of 8 August 1975 and the time at which the loan was first made

                    loan means,—

                    1. for money lent, to a person, on or after 1 January 1974 and on or before 22 January 1985, money that—
                      1. was lent with the consent of the Minister under the Capital Issues (Overseas) Regulations 1965 or the Overseas Investment Regulations 1974 or with the consent of the Reserve Bank under the Exchange Control Regulations 1978, as applicable; and
                        1. was lent in a currency other than New Zealand currency; and
                          1. was expressed to be repayable in a currency other than New Zealand currency:
                          2. for money lent, by a person, on or after 1 January 1974 and on or before 22 January 1985, money that—
                            1. was lent with the consent of the Reserve Bank under the Exchange Control Regulations 1978 if required; and
                              1. was expressed to be repayable in a currency other than New Zealand currency:
                              2. for money lent, to a person, on or after 23 January 1985, money that—
                                1. is lent in a currency other than New Zealand currency; and
                                  1. is expressed to be repayable in a currency other than New Zealand currency:
                                  2. in relation to money lent, by a person, on or after 23 January 1985, money that is expressed to be repayable in a currency other than New Zealand currency.

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