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Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules - Consideration when financial arrangement involves property or services

EW 32: Consideration for agreement for sale and purchase (ASAP) of property or services, hire purchase agreement, specified option, or finance lease

You could also call this:

“How to determine the value of property or services in various agreements”

When you buy or sell property or services, or enter into a hire purchase agreement, specified option, or finance lease, this law explains how to determine the value of the property or services involved. Here’s how it works:

  1. If you use IFRS accounting and the deal is a foreign ASAP (agreement for sale and purchase), use the IFRS value, but adjust for foreign exchange hedges.

  2. For other foreign ASAPs, use the amounts paid or payable, but ignore amounts related to future or discounted values on the rights date.

  3. For 12-month foreign ASAPs, use the future or discounted value (or a mix) of the amounts paid or payable on the rights date.

  4. For non-12-month foreign ASAPs, use the value stated in the agreement as paid or payable on the rights date.

  5. If none of the above apply, use the lowest price the parties would have agreed on when the deal was made, if full payment was required when the property was transferred or services provided.

  6. If the Credit Contracts and Consumer Finance Act 2003 applies, use the cash price defined in that Act.

  7. The tax commissioner can determine the value based on future or discounted values.

  8. You can apply to the commissioner for a specific determination or binding ruling on the value.

This law doesn’t apply if the agreement, option, or lease has lapsed or doesn’t go ahead.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515313.

Topics:
Money and consumer rights > Taxes
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EW 33: Consideration for hire purchase agreement or finance lease, or

“Costs and payments for hire purchase or finance lease agreements”

Part E Timing and quantifying rules
Financial arrangements rules: Consideration when financial arrangement involves property or services

EW 32Consideration for agreement for sale and purchase (ASAP) of property or services, hire purchase agreement, specified option, or finance lease

  1. This section applies when an original party to an agreement for the sale and purchase of property or services, a hire purchase agreement, a specified option, or a finance lease pays or is paid consideration that includes property or services.

  2. The value of the property or services is determined by applying, as modified by sections EW 33B, EW 33C, EW 33D, and EW 34 (which relate to certain agreements), subsections (2B) to (6) in numerical order until a subsection applies.

  3. If the person uses IFRSs to prepare financial statements or to report for financial arrangements, and the relevant financial arrangement is a foreign ASAP, the value of the property or services is the value under IFRS rules, modified on account of FX hedges as provided by section EW 33B. Section EW 33D applies.

  4. If the relevant financial arrangement is a foreign ASAP, the value of the property or services is the value of the amounts paid or payable under the foreign ASAP for the property or services, but ignoring amounts that are expressly provided in the agreement as paid or payable on account of the future value, or the discounted value, or a combination of both the future and discounted values, on the rights date, of amounts paid or payable. Section EW 33B may apply in relation to FX hedges, and sections EW 33C and EW 33D apply.

  5. If the relevant financial arrangement is a foreign ASAP that is a 12 month ASAP, the value of the property or services is the future value, or the discounted value, or a combination of both the future and discounted values, on the rights date, of the amounts paid or payable under the 12 month ASAP for the property or services. Section EW 33B may apply in relation to FX hedges, and sections EW 33C and EW 33D apply.

  6. If the relevant financial arrangement is a foreign ASAP that is not a 12 month ASAP, the value of the property or services on the rights date is the value expressly provided in the agreement as paid or payable for the property or services. Section EW 33B may apply in relation to FX hedges, and sections EW 33C and EW 33D apply.

  7. The value of the property or services is the lowest price the parties would have agreed on for the property or services, on the date the agreement, option, or lease was entered into, if payment had been required in full at the time the first right in the property was transferred or the services provided. Two qualifications are—

  8. this subsection does not apply to an agreement for the sale and purchase of property or services that is part of another financial arrangement:
    1. section EW 34 applies if the consideration is in a foreign currency.

      1. The value of the property or services is the cash price of the property or services to which the agreement, option, or lease relates, as determined by section 5 of the Credit Contracts and Consumer Finance Act 2003, if that Act applies to the agreement, option, or lease.

      2. The value of the property or services is the future value, or the discounted value, or a combination of both the future and discounted values, of the amounts paid or payable on the date on which the first right in the property is transferred or the services are provided, as determined by the Commissioner under a determination under section 90AC(1)(i) of the Tax Administration Act 1994.

      3. The value of the property or services is the amount determined by the Commissioner when either party to the arrangement applies to the Commissioner for a specific determination or binding ruling under section 91CC(1)(c) of the Tax Administration Act 1994. Both parties must use this amount.

      4. This section does not apply if the agreement, option, or lease has lapsed or does not proceed.

      5. Sections EZ 75 and EZ 76 (which relate to some ASAPs before the 2014–15 income year) override this section.

      Compare
      Notes
      • Section EW 32 heading: amended (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2): amended, on , by section 179(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
      • Section EW 32(2): amended (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2B) heading: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2B): inserted (with effect on 1 April 2011), on (applying for a financial arrangement entered into by a person— (a) in the 2014–15 income year and later income years, unless paragraph (b) applies: (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2B): amended, on , by section 179(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
      • Section EW 32(2C) heading: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2C): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2C): amended, on , by section 179(3) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
      • Section EW 32(2D) heading: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2D): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2D): amended, on , by section 179(4) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
      • Section EW 32(2E) heading: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2E): inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(3) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(2E): amended, on , by section 179(5) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
      • Section EW 32(2E): amended, on , by section 179(6) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
      • Section EW 32(6): amended, on , by section 179(7) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
      • Section EW 32(8) heading: inserted (with effect on 1 April 2008), on , by section 81(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32(8): inserted (with effect on 1 April 2008), on , by section 81(4) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32 list of defined terms 12 month ASAP: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32 list of defined terms apply: inserted, on , by section 74 of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
      • Section EW 32 list of defined terms binding ruling: inserted, on , by section 179(8) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
      • Section EW 32 list of defined terms foreign ASAP: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32 list of defined terms FX hedge: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32 list of defined terms IFRS: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
      • Section EW 32 list of defined terms rights date: inserted (with effect on 1 April 2011 and applying for a financial arrangement entered into by a person: (a) in the 2014–15 income year and later income years, unless paragraph (b) applies; (b) in an income year (the first income year) and later income years, if the person files a return of income for the first income year on the basis that this section applies to a financial arrangement entered into in the first income year, and the first income year is the 2011–12, 2012–13, 2013–14, or 2014–15 income year, and the person uses IFRSs to prepare financial statements or to report for financial arrangements for the first income year), on , by section 81(5) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).