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Income Tax Act 2007

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

EW 34: Consideration in foreign currency

You could also call this:

“Converting foreign currency payments in financial arrangements to New Zealand dollars”

When you have a financial arrangement that involves payment in a foreign currency, you need to follow some special rules. These rules apply when you’re trying to figure out the lowest price for the arrangement.

You have to convert the foreign currency amount into New Zealand dollars. To do this, you can choose from a few different exchange rates. The rate you pick depends on when the property rights are transferred and when the final payment is made.

You can use the exchange rate from a New Zealand bank on the day you enter the arrangement. This rate can be based on either the date when you first get rights to the property, or the date of the final payment. If you’re not sure about these dates, you can use the dates you expect these things to happen.

If the time between getting the property rights and making the final payment is 5 years or less, you can use the rate based on the final payment date.

Once you choose a rate, you have to use it for the whole time you have the arrangement. You can’t change it later.

In some cases, the Commissioner of Inland Revenue might approve a different exchange rate for you to use. This would be specified in a special determination under the Tax Administration Act 1994.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1515317.

Topics:
Money and consumer rights > Taxes
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Part E Timing and quantifying rules
Financial arrangements rules: Consideration when financial arrangement involves property or services

EW 34Consideration in foreign currency

  1. This section applies when the consideration payable under a financial arrangement to which section EW 32(3) applies is in a foreign currency.

  2. The lowest price referred to in section EW 32(3) is the lowest price the parties would have agreed on in the foreign currency, converted into New Zealand dollars using the rate that the original party applying section EW 32(3) selects from the rates in subsection (4). The party may select the rate in subsection (4)(b) only if the period between the date on which the first right in the property is to be transferred and the date on which final payment is to be made is 5 years or less.

  3. The party must apply the selected rate to the financial arrangement for every income year over its term.

  4. The rates are—

  5. the rate, on the date on which the parties enter into the financial arrangement, available to the party from a New Zealand registered bank for the exchange of New Zealand dollars for the foreign currency for 1 of the following dates:
    1. the date on which the first right in the property is to be transferred; or
      1. if that date is uncertain on the date on which the parties enter into the financial arrangement, the date on which the parties reasonably expect, when entering into the arrangement, that the first right in the property will be transferred; or
      2. the rate, on the date on which the parties enter into the financial arrangement, available to the party from a New Zealand registered bank for the exchange of New Zealand dollars for the foreign currency for 1 of the following dates:
        1. the date on which final payment is to be made; or
          1. if that date is uncertain on the date on which the parties enter into the financial arrangement, the date on which the parties reasonably expect, when entering into the arrangement, that final payment will be made; or
          2. an exchange rate approved by the Commissioner for this subsection in the circumstances applicable to the party in a determination under section 90AC(1)(k) of the Tax Administration Act 1994.

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