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Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules

EW 17: Straight-line method

You could also call this:

“How to calculate income tax using the straight-line method for financial arrangements”

You can use the straight-line method if you are part of a financial arrangement. To use this method, you need to meet three conditions. First, the total value of all your financial arrangements must be $1,850,000 or less every day in the income year. Second, you must follow the rules in section EW 25(1). Third, you must not be required to use a different method under section EW 15B.

When you calculate the total value, you need to include all your financial arrangements. This includes both the financial arrangements rules and the old financial arrangements rules. You should use different values for different types of arrangements. For a fixed principal financial arrangement, use its face value. For a variable principal debt instrument, use the amount you owe or are owed on the relevant day. For a financial arrangement under the old rules, use the value determined by those rules.

The Governor-General can make an Order in Council to increase the $1,850,000 limit. This Order is considered secondary legislation and must follow the rules in Part 3 of the Legislation Act 2019 for publication.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515270.

Topics:
Money and consumer rights > Taxes
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EW 16: Yield to maturity method or alternative, or

“Calculating income for financial arrangements using yield to maturity or a similar method”

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EW 18: Market valuation method, or

“Using market values to determine the worth of financial arrangements”

Part E Timing and quantifying rules
Financial arrangements rules

EW 17Straight-line method

  1. A person who is a party to a financial arrangement may use the straight-line method if—

  2. the total value of all the financial arrangements to which the person is a party in an income year has been $1,850,000 or less on every day in the income year; and
    1. the person complies with section EW 25(1); and
      1. the person is not required to use a method under section EW 15B.

        1. When calculating total value, the person must—

        2. include every one of their financial arrangements, whether the financial arrangements rules or the old financial arrangements rules apply to it; and
          1. use the following values:
            1. for a fixed principal financial arrangement, its face value:
              1. for a variable principal debt instrument, the amount owing by or to the person under the financial arrangement on the relevant day:
                1. for a financial arrangement to which the old financial arrangements rules apply, the value determined under those rules.

                2. The Governor-General may make an Order in Council increasing the sum specified in subsection (1).

                3. An Order in Council under subsection (3) is secondary legislation (see Part 3 of the Legislation Act 2019 for publication requirements).

                Compare
                Notes
                • Section EW 17(1)(a): amended, on , by section 7(1) of the Taxation (Business Tax Measures) Act 2009 (2009 No 5).
                • Section EW 17(1)(b): amended, on , by section 368(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                • Section EW 17(1)(c): added, on , by section 368(1) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                • Section EW 17(4) heading: inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                • Section EW 17(4): inserted, on , by section 3 of the Secondary Legislation Act 2021 (2021 No 7).
                • Section EW 17 list of defined terms IFRS: inserted, on , by section 368(2) of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).