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EM 5B: Fair dividend rate hedge portions: portfolio method
or “How to calculate hedge portions for foreign investments using the portfolio method”
You could also call this:

“How to calculate income or spending for fair dividend rate hedge portions”

You use a special calculation to work out your income and spending for fair dividend rate hedge portions. This happens for certain time periods. If the result is positive, it’s your income. If it’s negative, it’s your spending.

The calculation looks at the value of your fair dividend rate hedge portions at the start of the period. It also considers any gains or losses from certain hedges during that time. You multiply this by 0.05, then by the number of days in the period, and divide by the days in the year.

The calculation uses these parts:

  1. The value of your fair dividend rate hedge portions at the start of the period, in New Zealand dollars.
  2. The net gain from eligible hedges that started and ended in the last period, multiplied by the FDR hedge portion.
  3. The net loss from eligible hedges that started and ended in the last period, multiplied by the FDR hedge portion.
  4. The number of days in the period, which could be from section EM 1(1)(a)(ii) or the unit valuation period in section EX 53.
  5. The total number of days in the income year that includes this period.

You do this calculation for each relevant period to figure out your income or spending for fair dividend rate hedge portions.

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Next up: EM 7: Quarterly test of fair dividend rate hedge portions

or “Checking and adjusting your fair dividend rate hedge portions every three months”
Next

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

EM 6Income and expenditure for fair dividend rate hedge portions

  1. A person uses the formula in subsection (2) for each valuation period described in subsection (3)(b) that this subpart applies to them. A positive amount from the formula is a person's income for their fair dividend rate hedge portions. A negative amount from the formula is a person's expenditure for their fair dividend rate hedge portions.

  2. The formula for determining a person's income and expenditure for their fair dividend rate hedge portions is—

    (FDR portions’ value + period gain − period loss) × 0.05 × valuation period ÷ days in the year.

    Where:

    • In the formula,—

    • FDR portions' value is the market value of a person's fair dividend rate hedge portions at the start of a relevant valuation period in New Zealand currency:
      1. period gain is the net gain multiplied by the FDR hedge portion for relevant eligible hedges that are entered into and settled within the preceding valuation period:
        1. period loss is the net loss multiplied by the FDR hedge portion for relevant eligible hedges that are entered into and settled within the preceding valuation period:
          1. valuation period is the number of days in whichever of the following periods is relevant:
            1. the period described in section EM 1(1)(a)(ii):
              1. the unit valuation period described in section EX 53 (Fair dividend rate periodic method):
              2. days in the year is the number of days in the income year in which the relevant period falls.

                Notes
                • Section EM 6: inserted, on , by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                • Section EM 6(2) formula: amended, on , by section 93(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                • Section EM 6(3)(ab): inserted, on , by section 93(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                • Section EM 6(3)(ac): inserted, on , by section 93(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                • Section EM 6(3)(b)(ii): replaced, on , by section 130 of the Taxation (Annual Rates for 2015–16, Research and Development, and Remedial Matters) Act 2016 (2016 No 1).