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EM 6: Income and expenditure for fair dividend rate hedge portions
or “How to calculate income or spending for fair dividend rate hedge portions”
You could also call this:

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

You need to check your fair dividend rate hedge portions every three months. You do this by using a special calculation on a day you choose within the three-month period. This day must be the same for each three-month period in the tax year.

The calculation helps you find out your quarterly FDR hedging ratio. You do this by dividing the amount of foreign money you’ve hedged by the total value of your eligible assets. Both these amounts need to be in New Zealand dollars.

If your quarterly FDR hedging ratio is more than 1.05, you might need to change how you calculate your fair dividend rate hedge portion. You’ll use a new formula for this, starting five working days after your calculation day.

If your quarterly FDR hedging ratio is more than 1.05 for two three-month periods in a row, different rules will apply to you for the next six months. Instead of using this part of the law, you’ll need to follow the rules in Subpart EW.

There are some situations where these rules might not apply. For example, if section EM 5B applies to you, it might change how these rules work for you.

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Next up: EM 8: Some definitions

or “Definitions for income tax timing and measurement rules”
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Part E Timing and quantifying rules
Hedging of currency movements in Australian non-attributing shares and attributing FDR method interests

EM 7Quarterly test of fair dividend rate hedge portions

  1. A person must use the first formula, in subsection (2), on a day (the calculation day) they choose within a quarter of an income year, to calculate their quarterly FDR hedging ratio. The calculation day must be the same day for each quarter within the income year.

  2. The formula for calculating the person's quarterly FDR hedging ratio is—

    FDR hedges amount ÷ eligible currency assets.

    Where:

    • In the formula in subsection (2), all items are expressed in New Zealand currency, and—

    • FDR hedges amount is the total amount of foreign currency that is hedged by a person’s fair dividend rate hedge portions:
      1. eligible currency assets is the total market value of a person's assets described in section EM 1(1)(a) and (b).

        1. If a person's quarterly FDR hedging ratio for a quarter is greater than 1.05 and subsection (6) does not apply, then, despite section EM 5, the fair dividend rate hedge portion of each eligible hedge, from 5 working days after the calculation day of the quarter, is calculated using the formula—

          (0.85 ÷ quarterly FDR hedging ratio) × FDR hedge portion.

          Where:

          • In the formula in subsection (4),—

          • FDR hedge portion is the fair dividend rate hedge portion of the relevant eligible hedge:
            1. quarterly FDR hedging ratio is the person's quarterly FDR hedging ratio for the relevant quarter.

              1. This section overrides section EM 5, but does not apply if and to the extent to which section EM 5B applies.

              2. If a person's quarterly FDR hedging ratio is greater than 1.05 on the calculation day of 2 consecutive quarters, then this subpart will not apply to the person for the next 2 quarters. Subpart EW (Financial arrangements rules) applies.

              Notes
              • Section EM 7: inserted, on , by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
              • Section EM 7(1): replaced, on , by section 94(1) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section EM 7(4): amended, on , by section 94(2) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section EM 7(5B) heading: inserted, on , by section 94(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section EM 7(5B): inserted, on , by section 94(3) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
              • Section EM 7(6): amended, on , by section 94(4) of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).