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Income Tax Act 2007

Timing and quantifying rules - Valuation of excepted financial arrangements

ED 1B: Valuation of emissions units issued for zero price

You could also call this:

“How to value free emissions units for tax purposes”

When you receive emissions units for free, there are rules about how to value them for tax purposes. This applies to units you get from the government or other public authorities under certain schemes.

If you get these units in a year when you don’t have a ‘unit shortfall’ from earlier years, the units are valued at zero when you receive them.

If you do have a unit shortfall from earlier years, the new units you receive are valued differently. Some will be valued at the market price from the end of the shortfall year, while others will be valued at zero.

At the end of each tax year, if you still have units valued at zero, they might be revalued. The number of units that can be revalued is based on a calculation involving your entitlements and how many zero-value units you’ve sold.

If you can’t revalue all the units you’re entitled to, that creates a ‘unit shortfall’ for the year. This shortfall is tracked and can affect how future units are valued.

For some tax calculations, you’re treated as if you have extra units equal to the value of your unit shortfalls, even if you don’t actually have those units.

These rules help to make sure that the value of your emissions units is properly accounted for in your taxes over time.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM2537951.

Topics:
Money and consumer rights > Taxes
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ED 1: Valuation of excepted financial arrangements, or

“Valuing specific financial items at year-end”

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ED 2: Transfers of certain excepted financial arrangements within wholly-owned groups, or

“Rules for transferring certain financial items between related companies”

Part E Timing and quantifying rules
Valuation of excepted financial arrangements

ED 1BValuation of emissions units issued for zero price

  1. This section applies to emissions units held by a person in an income year that—

  2. are transferred to the person at a price of zero—
    1. under sections 80 to 86F of the Climate Change Response Act 2002:
      1. under section 64 of the Climate Change Response Act 2002 for a removal activity listed in Schedule 4, Part 2 of that Act:
        1. by a public authority under a supplementary agreement to a negotiated greenhouse agreement:
          1. by a public authority as a rebate, under a negotiated greenhouse agreement, for an indirect emissions charge; and
          2. have been held continuously by the person from the time of the transfer; and
            1. have not been valued under either of subsections (4)(a) and (8)(a) before the income year; and

                    1. If an emissions unit is transferred to the person in the income year and there is no earlier income year that is an emissions unit shortfall year for the person under subsections (9) and (10), the emissions unit is assigned a value of zero at the time of the transfer.

                    2. If an earlier income year is an emissions unit shortfall year for the person immediately before an emissions unit (the transferred unit) is transferred to the person in the income year, the value of the transferred unit at the time of the transfer is given by the application of the paragraphs in subsection (4) in alphabetical order to transferred units until all the transferred units are assigned a value.

                    3. If emissions units are transferred to the person in an income year when there is a unit shortfall under subsections (9) and (10) for an earlier emissions unit shortfall year,—

                    4. for each emissions unit shortfall year in date order, transferred units, up to the number corresponding to the unit shortfall relating to the emissions unit shortfall year, are each assigned a value equal to the market value of an emissions unit at the end of the emissions unit shortfall year:
                      1. transferred units are each assigned a value equal to zero.

                        1. If the value of an emissions unit (the revalued unit) held by the person immediately before the end of the income year is zero, the value of the revalued unit at the end of the year is given by the application of the paragraphs in subsection (8) in alphabetical order to revalued units until all the revalued units are assigned a value.

                        2. The maximum number of units valued under subsection (8)(a) for the income year is the greater of zero and the number calculated using the formula—

                          unit entitlement − disposals at zero value.

                          Where:

                          • In the formula,—

                          • unit entitlement is the total for the income year of amounts, each of which the person would have for the period of overlap between a calendar year ending 31 December and the income year if the period of overlap were treated as a year, of—
                            1. final allocation entitlement under section 83 of the Climate Change Response Act 2002:
                              1. allocation entitlement under section 85 of that Act:
                                1. allocation entitlement under section 64 of the Climate Change Response Act 2002 for a removal activity listed in Schedule 4, Part 2 of that Act:
                                  1. emissions units corresponding to the actual emissions amount under a supplementary agreement to a negotiated greenhouse agreement:
                                    1. emissions units corresponding to a rebate, under a negotiated greenhouse agreement, for an indirect emissions charge:
                                    2. disposals at zero value is the number of emissions units disposed of by the person in the income year that had a value of zero at the disposal.

                                      1. If the person holds revalued units immediately before the end of the income year, the units are each assigned a value—

                                      2. equal to the market value of an emissions unit at the end of the income year:
                                        1. equal to zero.

                                          1. If the number of units assigned a market value for an income year under subsection (8)(a) is less than the maximum number given by subsection (6) for the income year, at the end of the income year—

                                          2. the income year is an emissions unit shortfall year and has 2 numbers (the unit shortfall and the unit shortfall value) associated with it:
                                            1. the unit shortfall relating to the emissions unit shortfall year is the difference between the maximum number given by subsection (6) for the income year and the number of zero value units assigned a market value under subsection (8)(a) for the income year:
                                              1. the unit shortfall value relating to the emissions unit shortfall year is the unit shortfall multiplied by the market value of an emissions unit at the end of the income year.

                                                1. When an emissions unit held by a person is assigned a value under subsection (4)(a) in relation to a year that is an emissions unit shortfall year for the person,—

                                                2. the unit shortfall relating to that year is reduced by the number of emissions units assigned a value in relation to that year:
                                                  1. the unit shortfall value relating to that year is reduced by an amount equal to the number of emissions units assigned a value in relation to that year multiplied by the value assigned to each of those emissions units:
                                                    1. the year ceases to be an emissions unit shortfall year, if the unit shortfall relating to the year is reduced to zero.

                                                      1. For the purposes of sections CH 1 and DB 49 (which relate to adjustments for values of excepted financial arrangements), the person is treated as holding at the end of the income year additional emissions units with a value equal to the total of the unit shortfall values relating to emissions unit shortfall years for the person.

                                                      Notes
                                                      • Section ED 1B: substituted (with effect on 1 July 2010), on , by section 48 of the Taxation (GST and Remedial Matters) Act 2010 (2010 No 130).
                                                      • Section ED 1B(1)(a)(i): replaced (with effect on 1 July 2010), on , by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(1)(a)(ii): replaced (with effect on 1 July 2010), on , by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(1)(a)(iii): inserted (with effect on 1 July 2010), on , by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(1)(a)(iv): inserted (with effect on 1 July 2010), on , by section 32(1) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(1)(d): repealed (with effect on 1 July 2010), on , by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(1)(e): repealed (with effect on 1 July 2010), on , by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(1)(f): repealed (with effect on 1 July 2010), on , by section 32(2) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(7)(a)(iii): replaced (with effect on 1 July 2010), on , by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(7)(a)(iv): inserted (with effect on 1 July 2010), on , by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).
                                                      • Section ED 1B(7)(a)(v): inserted (with effect on 1 July 2010), on , by section 32(3) of the Taxation (Annual Rates, Returns Filing, and Remedial Matters) Act 2012 (2012 No 88).