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Income Tax Act 2007

Timing and quantifying rules - Financial arrangements rules

EW 15F: Expected value method

You could also call this:

“Calculating expected value for certain financial arrangements”

You can use the expected value method for a financial arrangement if you meet certain conditions. This method applies when you’ve entered into a financial arrangement as part of your normal business, but you’re not in the business of dealing with these arrangements. The arrangement must be in a foreign currency or be a derivative instrument, and it can’t be a foreign ASAP.

The arrangement either isn’t treated as a hedge under IFRSs, or it’s treated as a hedge for other arrangements where you don’t use the fair value method, or it’s treated as a hedge for something that isn’t a financial arrangement.

You and all the companies in your group need to choose to use this method and tell the Commissioner when you file your tax return. However, if your business is very different from other companies in your group, you might not have to use this method for arrangements with parties that aren’t connected to you or your group.

If you use this method, you need to follow the expected value approach described in Determinations G9C and G14B. You should allocate a fair amount for each year of the arrangement, keeping in mind the purposes of the financial arrangements rules in section EW 1(3).

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM1629858.

Topics:

Money and consumer rights > Taxes

EW 15E: Determination alternatives, or

"Options for calculating tax on financial arrangements"

EW 15G: Modified fair value method, or

"Special valuation method for certain financial arrangements in business"

Part E Timing and quantifying rules
Financial arrangements rules

EW 15FExpected value method

This section applies when—
a person has entered into a financial arrangement in the ordinary course of their business and the person is not in the business of dealing in relation to the financial arrangement; and
the financial arrangement is denominated in a currency other than New Zealand dollars or is a derivative instrument; and
the financial arrangement is not a foreign ASAP; and
the financial arrangement—
1. is not treated under IFRSs by the person as a hedge; or
2. 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
3. is treated under IFRSs by the person as a hedge of something that is not a financial arrangement; and
the person and all companies in a group of companies to which the person belongs have chosen to use the expected value method and have notified the Commissioner at the time of filing a return of income.

A person who is a member of a group of companies and has notified an election under subsection (1)(d) is not required under this section to use the expected value method for a financial arrangement if—
the person does not have a business of a substantially similar nature to a business of another company in the group; and
the financial arrangement is with other parties, of which—
1. none are associated with the person or a member of the group; or
2. all are associated with the person and use the method used by the person for the arrangement.

The person must use a method that—
has the features of an expected value approach described in Determinations G9C and G14B; and
allocates a reasonable amount for each income year of the term of the financial arrangement, having regard to the purposes of the financial arrangements rules under section EW 1(3).

Repealed

Compare

2004 No 35 s EW 15E(1), (2)

Notes

Section EW 15F: inserted, on 1 April 2008, by section 366 of the Taxation (Business Taxation and Remedial Matters) Act 2007 (2007 No 109).
Section EW 15F(1)(bb): 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 30 June 2014, by section 77(1) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15F(1)(c): substituted (with effect on 1 April 2008), on 6 October 2009, by section 137(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(1)(c)(ii): amended (with effect on 1 April 2008), on 7 September 2010, by section 37 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15F(1)(c)(iii): added (with effect on 1 April 2008), on 7 September 2010, by section 37 of the Taxation (Annual Rates, Trans-Tasman Savings Portability, KiwiSaver, and Remedial Matters) Act 2010 (2010 No 109).
Section EW 15F(1)(d): substituted (with effect on 1 April 2008), on 6 October 2009, by section 137(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(1B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 137(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(1B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 137(3) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(3) heading: repealed (with effect on 1 October 2008), on 6 October 2009, pursuant to section 137(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F(3): repealed (with effect on 1 October 2008), on 6 October 2009, by section 137(4) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F list of defined terms associated person: inserted (with effect on 1 April 2008), on 6 October 2009, by section 137(5) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).
Section EW 15F 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 30 June 2014, by section 77(2) of the Taxation (Annual Rates, Employee Allowances, and Remedial Matters) Act 2014 (2014 No 39).
Section EW 15F list of defined terms NZIAS 39: repealed, on 26 June 2019, by section 80 of the Taxation (Annual Rates for 2019–20, GST Offshore Supplier Registration, and Remedial Matters) Act 2019 (2019 No 33).