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Income Tax Act 2007

Timing and quantifying rules - Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests

EM 3: What hedges does this subpart apply to?

You could also call this:

“Types of foreign currency agreements covered by this subpart”

This subpart applies to something called an eligible hedge. An eligible hedge is a special kind of agreement about money from different countries. For it to be an eligible hedge, it needs to follow some rules.

The agreement must be about swapping New Zealand dollars for money from another country, or the other way around. It can’t be something where you have a choice to make the swap or not. You can’t make this agreement with someone who is closely connected to you, like a family member or business partner.

When you first make this agreement, it must be worth nothing or you must pay the right price for it. You also need to choose for this rule to apply to your agreement.

There’s another type of eligible hedge too. This one can be about swapping any kind of money for any other kind of money. But you can only use this type if you’re trying to balance out the money from different countries that you already have in your other eligible hedges.

Remember, for both types of eligible hedges, you need to follow the rules in section EM 1 and section EM 4.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=DLM5502528.

Topics:
Money and consumer rights > Taxes
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EM 2: Who does this subpart apply to?, or

“This subpart applies to certain investors, funds, and life insurers”

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EM 4: Elections, or

“Choosing special tax rules for managing eligible hedges”

Part E Timing and quantifying rules
Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests

EM 3What hedges does this subpart apply to?

  1. This subpart applies to a person's hedge (an eligible hedge) if section EM 1 applies to the hedge, and the hedge—

  2. is a contract to conditionally or unconditionally acquire or dispose of foreign exchange in return for New Zealand currency, or is a swap with one leg denominated in a foreign currency and the other leg denominated in New Zealand currency; and
    1. is not an option; and
      1. is not entered into with an associated person; and
        1. has, under IFRSs, a fair value of zero when it is first entered into or is acquired at its fair value; and
          1. is subject to an election under section EM 4.

            1. Despite subsection (1), this subpart applies and a person’s hedge is an eligible hedge, if section EM 1 applies to the hedge, the person has not chosen to use section EM 5(4) and (5) for the hedge, and the hedge—

            2. is a contract to conditionally or unconditionally acquire or dispose of any currency in return for any other currency, or is a swap with legs denominated in any currency; and
              1. meets the requirements of subsection (1)(b) to (e); and
                1. is entered into only to rebalance currency exposures for the person’s other eligible hedges.

                  Notes
                  • Section EM 3: inserted, on , by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                  • Section EM 3(1) heading: inserted, on , by section 89(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                  • Section EM 3(1)(d): amended, on , by section 89(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                  • Section EM 3(2) heading: inserted, on , by section 89(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                  • Section EM 3(2): inserted, on , by section 89(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).