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EW 26: Change of spreading method
or “Rules for changing how you spread income or expenses from financial arrangements”
You could also call this:

“How to calculate the difference when changing your income calculation method”

When you change how you calculate your income and expenses for a financial arrangement, you need to use a special formula. This formula helps you figure out the difference between your old method and your new method.

You use this formula for each financial arrangement you’re involved in at the end of the year when you change your method. You also use it for arrangements you were involved in at the end of the previous year.

The formula looks like this: new income minus new expenses minus old income plus old expenses.

‘New income’ is how much money you would have made if you had used the new method from the start of the arrangement until now. ‘New expenses’ is how much you would have spent using the new method for the same time.

‘Old income’ is the money you actually reported as income from this arrangement in previous years. ‘Old expenses’ is what you actually spent on this arrangement in previous years.

There’s a special rule in section EZ 52C that might change how you use this formula if you’re switching between two specific methods called Determination G22 and Determination G22A.

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Next up: EW 28: How base price adjustment calculated

or “Calculating the base price adjustment for financial arrangements”
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Part E Timing and quantifying rules
Financial arrangements rules

EW 27Spreading method adjustment formula

  1. A person calculates a spreading method adjustment using the formula in subsection (3).

  2. The person must apply the formula to each financial arrangement to which they—

  3. are a party at the end of the income year in which they change their spreading method; and
    1. were a party at the end of the previous income year.

      1. The formula is—

        income (new method) − expenditure (new method) − income (old method) + expenditure (old method).

        Where:

        • The items in the formula are defined in subsections (5) to (8).

        • Income (new method) is the amount that would have been income derived by the person under the financial arrangement if the new method had been used for the arrangement in the period starting on the date on which the person became a party to the arrangement and ending on the last day of the income year for which the calculation is made.

        • Expenditure (new method) is the amount that would have been expenditure incurred by the person under the financial arrangement if the new method had been used for the arrangement in the period starting on the date on which the person became a party to the arrangement and ending on the last day of the income year for which the calculation is made.

        • Income (old method) is income, under section CC 3 (Financial arrangements), derived by the person under the financial arrangement in earlier income years.

        • Expenditure (old method) is expenditure incurred by the person under the financial arrangement in earlier income years.

        • Section EZ 52C (Change of spreading method: Determination G22 to Determination G22A) modifies this section.

        Compare
        Notes
        • Section EW 27(9) heading: added, on , by section 40 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
        • Section EW 27(9): added, on , by section 40 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).