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Income Tax Act 2007

Timing and quantifying rules - Valuation of excepted financial arrangements

ED 1: Valuation of excepted financial arrangements

You could also call this:

“Valuing specific financial items at year-end”

You need to value your excepted financial arrangements at the end of each income year. Here’s how to do it:

  • Generally, you must value them at cost.

  • If you got shares through a taxable bonus issue, value them at the amount of the dividend you got from the issue. Don’t include imputation credits or withheld tax.

  • For shares you lend out or borrow, use the cost of the original shares.

  • You must use either the first-in first-out method or the weighted average method to work out the cost.

  • Different types of emissions units can’t be mixed together when working out their value.

  • If you follow accounting standards, you need to be consistent with how you value things from year to year.

  • If you don’t follow accounting standards, you still need to be consistent. You can only change your method for good business reasons.

  • Some special types of emissions units are valued at zero or at market value.

  • If something has no value now or in the future and you’ve written it off, its value is zero.

The value you work out using these rules is what you use at the end of one tax year and the start of the next tax year.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1514483.

Topics:
Money and consumer rights > Taxes
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ED 1B: Valuation of emissions units issued for zero price, or

“How to value free emissions units for tax purposes”

Part E Timing and quantifying rules
Valuation of excepted financial arrangements

ED 1Valuation of excepted financial arrangements

  1. A person who has revenue account property that is an excepted financial arrangement must determine the value of the arrangement at the end of each income year at cost.

  2. Despite subsection (1), a share supplier’s share-lending right has the value at the end of each income year that is equal to the amount described in subsection (4).

  3. Despite subsection (1), the original share or an identical share acquired by a share supplier from a share user under a share-lending arrangement has the value at the end of each income year that is equal to the amount described in subsection (4).

  4. For subsections (2) and (3), the amount is the value of the original share at cost, determined by applying this section to the share immediately before the share supplier’s disposal of the share under the relevant share-lending arrangement.

  5. Despite subsection (1), a share that a person acquires under a taxable bonus issue is valued immediately before the person disposes of the share at an amount equal to the amount of the dividend derived by the person from the issue of the share, not including the amount of imputation credits attached to the dividend by the issuer of the share and withholding tax withheld by the issuer of the share.

  6. The person must use 1 of the following cost-flow methods to allocate costs:

  7. the first-in first-out cost method; or
    1. the weighted average cost method.

      1. No emissions unit described in 1 of the following paragraphs may be pooled for the purposes of subsection (5) with an emissions unit described in another of the paragraphs:

      2. pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive income, other than exempt income and excluded income, from a disposal of the land without timber:
        1. post-1989 forest land emissions units:
          1. forest sink emissions units:
            1. replacement forest land emissions units:
              1. fishing quota emissions units, if the holder of the units would derive income, other than exempt income and excluded income, from a disposal of the individual transferable quota to which the units relate:
                1. pre-1990 forest land emissions units relating to pre-1990 forest land, if the holder of the units would derive no income other than exempt income and excluded income from a disposal of the land without timber:
                  1. fishing quota emissions units, if the holder of the units would derive no income, other than exempt income and excluded income, from a disposal of the individual transferable quota to which the units relate:
                    1. emissions units issued for no consideration—
                      1. to which section ED 1B applies; and
                        1. that have not been assigned a cost under section ED 1B(3)(a).

                        2. Despite subsection (5B), for the purposes of subsection (5),—

                        3. emissions units described in paragraphs (a) to (cb) may be pooled together:
                          1. emissions units described in paragraphs (d) and (db) may be pooled together.

                            1. A person who complies with generally accepted accounting practice must comply with the consistency and disclosure requirements of NZIAS 8 or an equivalent standard issued in its place.

                            2. A person who does not comply with generally accepted accounting practice—

                            3. must be consistent from 1 income year to the next in their choice of 1 of the cost-flow methods described in subsection (5); and
                              1. may change their cost-flow method if—
                                1. the change is justified by sound commercial reasons and for this purpose, the advancement, deferral, or reduction of an income tax liability is not a sound commercial reason; or
                                  1. the change is required by another provision in this subpart; and
                                  2. must keep sufficient details of any such change, and the reasons for it, under section 22 of the Tax Administration Act 1994.

                                    1. Despite subsection (1),—

                                    2. an emissions unit transferred under Part 4, subpart 2, of the Climate Change Response Act 2002 in an income year for no payment of a price, and to which section ED 1B does not apply, has a value of zero for the period beginning with the transfer and ending before the end of the income year:
                                      1. a forest land emissions unit has a value of zero at the end of each income year:
                                        1. a replacement forest land emissions unit has a value of zero at the end of each income year:
                                          1. a fishing quota emissions unit has a value at the end of each income year of—
                                            1. the market value of the unit at the end of the income year, if the holder of the unit would derive income, other than exempt income and excluded income, from a disposal of the individual transferable quota to which the units relate; or
                                              1. zero, if subparagraph (i) does not apply:
                                              2. an emissions unit to which section ED 1B applies has the value at the end of each income year that is given by that section.

                                                1. If an excepted financial arrangement has no present or likely future market value and has been written off as worthless, its closing value is zero.

                                                2. Repealed

                                                3. The value determined under this section is—

                                                4. the closing value of the excepted financial arrangement for the purposes of section CH 1 (Adjustment for closing values of trading stock, livestock, and excepted financial arrangements); and
                                                  1. the opening value of the excepted financial arrangement for the next income year for the purposes of section DB 49 (Adjustment for opening values of trading stock, livestock, and excepted financial arrangements).

                                                    Compare
                                                    Notes
                                                    • Section ED 1(4B) heading: inserted, on (applying for shares received under taxable bonus issues made on or after this date), by section 57(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                    • Section ED 1(4B): inserted, on (applying for shares received under taxable bonus issues made on or after this date), by section 57(1) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).
                                                    • Section ED 1(5B) heading: inserted (with effect on 1 January 2009), on , by section 115(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1(5B): inserted (with effect on 1 January 2009), on , pursuant to section 115(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1(5B)(bb): inserted (with effect on 1 January 2009), on , by section 28(1) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                                    • Section ED 1(5B)(cb): inserted (with effect on 1 July 2010), on , by section 28(2) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                                    • Section ED 1(5B)(db): inserted (with effect on 1 July 2010), on , by section 28(3) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                                    • Section ED 1(5C) heading: inserted (with effect on 1 January 2009), on , by section 115(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1(5C): substituted (with effect on 1 July 2010), on , by section 28(4) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                                    • Section ED 1(6): amended, on , by section 355(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                    • Section ED 1(7B) heading: inserted (with effect on 1 January 2009), on , by section 115(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1(7B): inserted (with effect on 1 January 2009), on , by section 115(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1(7B)(a): substituted (with effect on 1 July 2010), on , by section 47(1) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                    • Section ED 1(7B)(a): amended (with effect on 1 July 2010), on , by section 31 of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                    • Section ED 1(7B)(cb): inserted (with effect on 1 July 2010), on , by section 47(2) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                    • Section ED 1(8B) heading: repealed (with effect on 1 January 2009), on , pursuant to section 115(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1(8B): repealed (with effect on 1 January 2009), on , by section 115(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms emissions unit: inserted (with effect on 1 January 2009), on , by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms excluded income: inserted (with effect on 1 January 2009), on , by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms exempt income: inserted (with effect on 1 January 2009), on , by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms fishing quota emissions unit: inserted (with effect on 1 July 2010), on , by section 28(5)(a) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                                    • Section ED 1 list of defined terms forest land emissions unit: inserted (with effect on 1 January 2009), on , by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms forest sink emissions unit: inserted (with effect on 1 January 2009), on , by section 28(5)(b) of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                                    • Section ED 1 list of defined terms NZIAS 8: amended, on , by section 355(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                                    • Section ED 1 list of defined terms pay: inserted (with effect on 1 July 2010), on , by section 47(3) of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                    • Section ED 1 list of defined terms post-1989 forest land emissions unit: inserted (with effect on 1 January 2009), on , by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms pre-1990 forest land: inserted (with effect on 1 January 2009), on , by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms pre-1990 forest land emissions unit: inserted (with effect on 1 January 2009), on , by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms replacement ETS unit: repealed (with effect on 1 January 2009), on , by section 115(4)(a) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                                    • Section ED 1 list of defined terms replacement forest land emissions unit: inserted (with effect on 1 January 2009), on , by section 115(4)(b) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).