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Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules

EW 15E: Determination alternatives

You could also call this:

“Options for calculating tax on financial arrangements”

This section talks about what you can do if you want to use a different way to calculate your tax for a financial arrangement, instead of using the usual IFRS method. Here’s what you need to know:

You can choose a different method if:

  • You say in your tax return that you want to use it
  • The method is allowed for your situation
  • Your financial arrangement isn’t treated as a hedge under IFRS, or if it is, it’s hedging something that’s not a financial arrangement

If you meet these conditions, you can use one of these methods:

  • Determination G3 (only for arrangements in New Zealand dollars that aren’t derivative instruments)
  • Determination G9C for arrangements in foreign currencies
  • Determination G14B for forward contracts
  • Determination G27 for swaps
  • A method decided by the Commissioner of Inland Revenue
  • Another method that’s similar to these and gives similar results

There are some special rules for using these methods. For example, if you use G9C or G14B, the term “forward contract” includes agreements about prices of things without actually buying or selling them. If you use G27, you have to use method C and follow some specific rules.

If you’re part of a group of companies, there are rules about when the whole group needs to choose the same method.

Remember, these rules are quite complex, so it’s a good idea to get help from a tax expert if you’re not sure what to do.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1629855.

Topics:
Money and consumer rights > Taxes
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EW 15D: IFRS financial reporting method, or

“Rules for reporting income using international financial standards”

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EW 15F: Expected value method, or

“Calculating expected value for certain financial arrangements”

Part E Timing and quantifying rules
Financial arrangements rules

EW 15EDetermination alternatives

  1. This section applies when—

  2. a person chooses in a return of income to use a determination alternative to IFRS for a financial arrangement; and
    1. the method is available under its terms for the person to use; and
      1. the financial arrangement—
        1. is not treated under IFRSs by the person as a hedge; or
          1. is treated under IFRSs by the person as a hedge of other financial arrangements, for each of which the person does not use the fair value method; or
            1. is treated under IFRSs by the person as a hedge of something that is not a financial arrangement.

            2. The person must use 1 of the following methods modified, as applicable, under subsection (3) or (3B):

            3. Determination G3: Yield to maturity, but only if the financial arrangement is denominated in New Zealand currency and is not a derivative instrument. When applying Determination G3, Determination G25: Variation in the terms of a financial arrangement must be used:
              1. Determination G9C: Financial arrangements that are denominated in a currency other than New Zealand dollars: an expected value approach:
                1. Determination G14B: Forward contracts for foreign exchange and commodities: an expected value approach:
                  1. Determination G27: Swaps:
                    1. a determination made by the Commissioner under section 90AC(1)(bb) of the Tax Administration Act 1994 or a binding ruling made under section 91CC(1)(b) of that Act:
                      1. a method other than those set out in paragraphs (aa) to (d) if the alternative—
                        1. has regard to the purposes of the financial arrangements rules under section EW 1(3); and
                          1. is for a financial arrangement similar to 1 to which the methods set out in paragraphs (aa) to (d) may apply; and
                            1. results in the allocation to each income year of amounts that are not materially different from those that would have been allocated using 1 of the methods set out in paragraphs (aa) to (d).

                            2. For a determination alternative that is Determination G9C or G14B, the allocation is modified as follows:

                            3. the term forward contract is treated as including a conditional or unconditional agreement to pay or be paid an amount calculated by reference to the price of property or services, without the property being delivered or the services being performed:
                              1. a requirement that all companies in a group of companies to which the person belongs choose to use the determination alternative is treated as met if—
                                1. all companies in the group notify the Commissioner that they choose Determination G9C or G14B on or before the 63rd day after the person entered into the financial arrangement, or a later time as the Commissioner allows; and
                                  1. the financial arrangement is the first financial arrangement of the group for which Determination G9C or G14B may be used.

                                  2. For a determination alternative that is Determination G27, the allocation is modified as follows:

                                  3. method C must be used, and not methods A, B, or D:
                                    1. for method C, if relevant, Determination G9C and not Determination G9A must be used.

                                      1. For the purposes of this section, the determinations set out in subsection (2)(a) to (c) include a determination that succeeds the determination.

                                      Compare
                                      Notes
                                      • Section EW 15E: inserted, on , by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
                                      • Section EW 15E(1)(c): substituted (with effect on 1 April 2008), on , by section 136(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                      • Section EW 15E(1)(c)(ii): amended (with effect on 1 April 2008), on , by section 36 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                      • Section EW 15E(1)(c)(iii): added (with effect on 1 April 2008), on , by section 36 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
                                      • Section EW 15E(2): amended (with effect on 1 April 2009), on , by section 136(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                      • Section EW 15E(2)(aa): inserted (with effect on 1 April 2008), on , by section 136(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                      • Section EW 15E(2)(d): replaced, on , by section 177(1) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                      • Section EW 15E(2)(e): amended (with effect on 1 April 2009), on , by section 19(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                                      • Section EW 15E(2)(e)(ii): amended (with effect on 1 April 2009), on , by section 19(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                                      • Section EW 15E(2)(e)(iii): amended (with effect on 1 April 2009), on , by section 19(1) of the Taxation (Consequential Rate Alignment and Remedial Matters) Act 2009 (2009 No 63).
                                      • Section EW 15E(3)(b)(i): replaced, on , by section 35(1) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                      • Section EW 15E(3B) heading: inserted (with effect on 1 April 2009), on , by section 136(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                      • Section EW 15E(3B): inserted (with effect on 1 April 2009), on , by section 136(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                      • Section EW 15E list of defined terms binding ruling: inserted, on , by section 177(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).
                                      • Section EW 15E list of defined terms Commissioner: inserted, on , by section 35(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).
                                      • Section EW 15E list of defined terms derivative instrument: inserted (with effect on 1 April 2009), on , by section 136(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                      • Section EW 15E list of defined terms New Zealand: inserted (with effect on 1 April 2009), on , by section 136(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
                                      • Section EW 15E list of defined terms notify: inserted, on , by section 35(2) of the Taxation (Transformation: First Phase Simplification and Other Measures) Act 2016 (2016 No 27).