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EM 7: Quarterly test of fair dividend rate hedge portions
or “Checking and adjusting your fair dividend rate hedge portions every three months”
You could also call this:

“Definitions for income tax timing and measurement rules”

In this part of the law, you’ll find some important words and what they mean. These definitions help you understand the rules about timing and measuring for income tax.

When the law talks about “Australian non-attributing shares”, it means shares you own in an Australian company that aren’t counted as part of your income because of a special rule.

An “eligible hedge” is a way to protect the value of your money when dealing with foreign currencies. There’s another part of the law that explains this in more detail.

The “fair dividend rate hedge portion” is about how much of your foreign currency protection is related to your assets.

A “hedge” is when you make a financial deal to protect yourself from changes in foreign currency values. It can also mean protecting that protection.

An “investor interest” is what you have when you own part of a company or another type of business that gives you the right to get some of the money it makes.

“Non-eligible assets” are things you own that are valued in foreign money and aren’t covered by certain parts of this law. But some things, like a small amount of cash or certain New Zealand investments, aren’t counted as non-eligible assets.

A “qualifying hedge fund” is when you’ve invested in a special type of fund (called a multi-rate PIE) and some of the fund’s income from certain assets is assigned to you.

The “quarterly FDR hedging ratio” is a number worked out using a formula in another part of this law.

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Next up: EW 1: What this subpart does

or “This section summarises the financial arrangements rules and their purposes”
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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 8Some definitions

  1. In this subpart,—

    Australian non-attributing shares means a person's rights in a FIF in an income year if the rights—

    1. are a share in a company resident in Australia at all times in the year when the person holds a right in the company; and
      1. are not an attributing interest, because of the application of section EX 31 (Exemption for ASX-listed Australian companies)

        eligible hedge means a hedge described in section EM 3

          fair dividend rate hedge portion means the percentage portion of the hedging of the foreign currency exchange rate movements in the value of a person's assets for an eligible hedge under this subpart

            hedge—

            1. means 1 or more related financial arrangements that a person enters into with the sole purpose and net effect of offsetting exposure to foreign currency exchange rate movements in the value of their assets, and hedging is the effect of holding a hedge for that purpose; and
              1. includes, in a hedge described in paragraph (a), a hedge of that hedge

                investor interest means—

                1. if the relevant entity is a company, a shareholding that gives the holder an entitlement to a distribution of the proceeds from the entity's investments; or
                  1. if the relevant entity is not a company, an interest that, under the rules of the entity, gives the holder an entitlement to a proportion of the funds available for distribution of the proceeds from the entity's investments, and that distribution is the same as if the entity were a company and the holder were a shareholder in that company

                    non-eligible assets—

                    1. means assets that are denominated in a foreign currency and not described in section EM 1(1)(a) and (b); but
                      1. does not include—
                        1. cash assets totalling less than 5% of the total market value of a person’s assets described in section EM 1(1)(a) and (b), or, at the election of the person, foreign cash assets that relate directly to assets described in section EM 1(1)(a) and (b) and to FDR hedge portions:
                          1. eligible hedges:
                            1. New Zealand securities listed on a recognised exchange and denominated in a foreign currency to the extent to which the securities are unhedged as to foreign currency

                            qualifying hedge fund means a person that is an investor in a multi-rate PIE, either directly or indirectly through 1 or more multi-rate PIEs, if and to the extent to which income of the multi-rate PIE from an asset described in section EM 1(1)(a) and (b) is attributed to the person

                              quarterly FDR hedging ratio means the ratio calculated using the formula in section EM 7(2).

                              Notes
                              • Section EM 8: inserted, on , by section 49 of the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013 (2013 No 52).
                              • Section EM 8 non-eligible assets: inserted, on , by section 95 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).
                              • Section EM 8 qualifying hedge fund: inserted, on , by section 95 of the Taxation (Annual Rates for 2021–22, GST, and Remedial Matters) Act 2022 (2022 No 10).