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EW 52B: Excepted financial arrangements involving pre-1990 forest land emissions units
or “Rules for temporary transfers of pre-1990 forest land emissions units”
You could also call this:

“Adjusting your taxes for certain financial arrangements”

When you’re part of a financial arrangement, you might need to make an adjustment in certain situations. This happens when:

You, the other party, or someone connected to you can decide how much money to pay in the arrangement. This isn’t a normal way to make financial deals. The changes in the amount aren’t because of changes in things like commodity prices or bank rates. The arrangement goes against what the financial arrangement rules are trying to do.

If this applies to you, you need to calculate an adjustment every five years that you’re part of the arrangement, and when you stop being part of it.

To make the adjustment, you first need to work out your income or spending for each year. You do this using a method called ‘yield to maturity’ that the Commissioner of Inland Revenue tells you how to use.

When you’re doing this calculation, you need to include all the money involved in the arrangement from when you started being part of it. Every five years, you also need to include either the market value of the arrangement or, if there isn’t a market value, what you might reasonably get if you sold it.

After you’ve worked out these numbers, you need to calculate your income tax again for each year, using the new income or spending figures instead of what you originally calculated.

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Next up: EW 54: Meaning of cash basis person

or “Who qualifies as a cash basis person for tax purposes”
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Part E Timing and quantifying rules
Financial arrangements rules: Consideration when anti-avoidance provision applies

EW 53Adjustment required

  1. This section applies when—

  2. the terms of a financial arrangement give either party, both parties, or an associated person the discretion to decide on an amount payable under the arrangement; and
    1. it is not generally accepted commercial practice to make financial arrangements containing such terms; and
      1. a change in the amount brought about by the exercise of the discretion does not reflect changes in commodity, economic, financial, or industrial indices, or in banking or general commercial rates; and
        1. the effect of the financial arrangement is to defeat the intention of the financial arrangements rules.

          1. Each person who is a party to the financial arrangement must calculate an adjustment for the income years specified in subsection (3) by following the steps in subsections (4) to (6).

          2. The adjustment must be calculated for the following income years:

          3. until the person ceases to be a party, the fifth income year after the income year in which the parties entered into the financial arrangement and every fifth income year after that; and
            1. the income year in which the person ceases to be a party.

              1. The first step the person takes is to calculate income or expenditure under the financial arrangement for each income year using the yield to maturity method in the manner prescribed by the Commissioner in a determination under section 90AC(1)(a) of the Tax Administration Act 1994.

              2. The person must include the following amounts in the calculation:

              3. for every income year for which the calculation is made, as described in subsection (3), the consideration and amounts described in section EW 15 for the period starting on the date on which the person became a party to the financial arrangement and ending on the last day of the income year for which the calculation is made; and
                1. for every fifth income year, as described in subsection (3)(a),—
                  1. an amount equal to the financial arrangement’s market value on the last day of the income year, as if the person had disposed of the arrangement for that amount; or
                    1. if the financial arrangement has no market value, the amount that might reasonably be expected to be paid on a disposal at arm’s length.

                    2. The second step the person takes is to calculate the income tax liability for each income year using the income or expenditure calculated under subsections (4) and (5) in substitution for the income or expenditure previously calculated for the financial arrangement for each income year.

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