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FE 18: Measurement of debts and assets of worldwide group
or “How to measure a worldwide group's debts and assets for tax purposes”
You could also call this:

“Minimum equity requirement for NZ banking groups”

When you’re part of a New Zealand banking group, you need to work out something called the equity threshold for each tax year. Here’s how you do it:

You use a special formula that looks like this: 0.06 times (risk-weighted exposures minus deductions from equity value).

Risk-weighted exposures are the total of three things:

  1. The regulatory value of assets on your balance sheet
  2. The regulatory value of exposures not on your balance sheet
  3. The financial value of any goodwill not counted in adjustment 4 when working out the New Zealand net equity

Deductions from equity value are the total of the regulatory values of adjustments 1 to 10 mentioned in section FE 21.

Remember, if you have a fixed establishment, its assets include those that are treated as its assets under normal accounting rules.

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Next up: FE 20: Financial value and regulatory value

or “Explaining how banks calculate financial and regulatory values for reporting”
Next

Part F Recharacterisation of certain transactions
Interest apportionment on thin capitalisation: New Zealand banking group

FE 19Banking group’s equity threshold

  1. A reporting bank must calculate the equity threshold of its New Zealand banking group for a tax year using the formula—

    0.06 × (risk-weighted exposures − deductions from equity value).

    Where:

    • In the formula,—

    • risk-weighted exposures is the sum of the following values:
      1. for an asset included in a balance sheet, the regulatory value of the asset:
        1. for an exposure not included in a balance sheet, the regulatory value of the exposure:
          1. for an amount of goodwill that is not taken into account in adjustment 4: intangible assets in determining the New Zealand net equity of the group under section FE 21, the financial value of the goodwill:
          2. deductions from equity value is the total amount of the regulatory values of adjustments 1 to 10 referred to in section FE 21.

            1. For the purposes of this section, the assets of a fixed establishment include those treated as assets of the fixed establishment under generally accepted accounting practice.

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            Notes
            • Section FE 19(1) formula: replaced (with effect on 1 April 2012), on (applying for measurement dates under section FE 8(3) of the Income Tax Act 2007 for periods beginning on or after 1 April 2012), by section 70(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).