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Inland Revenue

Tax Policy

PUBLISHED 14 December 2012

Proposed changes to financial arrangements rules

The Minister of Revenue announced proposals to simplify the rules for financial arrangements for the sale and purchase of property and services. For more information see the media statement and fact sheet.

Hon Peter Dunne
Minister of Revenue

14 December 2012

Media statement

Dunne: Govt to simplify financial arrangements rules

The Government will move to simplify the rules relating to financial arrangements that are agreements for the sale and purchase of property or services, Revenue Minister Peter Dunne announced today.

Mr Dunne said the changes reflect concerns expressed by a number of business taxpayers and their representatives over the past few years.

“The proposed changes will have a beneficial impact on business taxpayers who sell or buy property or services. They will be particularly welcomed by businesses who export and import capital equipment,” he said.

Taxpayers who prepare financial reports using International Financial Reporting Standards (IFRS) will now follow their accounting treatment for taxation purposes for almost all of these arrangements. The exception will be capital account transactions other than depreciable property. Other taxpayers will use simplified rules that will give similar results.

The amendments will apply from the 2013/14 income year. However the legislation will allow IFRS taxpayers to elect to apply the accounting treatment to new arrangements from the 2011/12 income year.

The changes will also validate the past treatment of arrangements which have effectively used methods allowed under the new rules.

Mr Dunne said that simplifying the rules was consistent with the Government’s objective of making it easier for customers to interact with government.

“The rule changes will mean lower compliance costs, increased technical compliance and for some, less volatility of taxable income from year-to-year,” he said.

The amendments will be included in the next available tax bill, with draft legislation expected to be released for comment in March 2013.

More technical details on the proposed rules and their application can be found in a fact sheet at

Financial arrangements for the sale and purchase of property or services

Fact sheet


Business taxpayers have made submissions to Inland Revenue concerning the complexity of the taxation rules regarding financial arrangements where they are agreements for the sale and purchase of property or services.

Put simply, the complexity of the rules is now inappropriate.


The advent of the International Financial Reporting Standards (IFRS) provides an opportunity to simplify the rules.

It will be mandatory for IFRS taxpayers to follow their financial reporting treatment for almost all of their agreements for the sale and purchase of goods and services.

The exception will be agreements for capital items, other than capital items that are depreciable. Non-depreciable capital items will be dealt with at spot, and any hedging of these non-capital items will be treated separately as usual.

Non-IFRS taxpayers will use a simplified version of the IFRS treatments.

The Issues Paper released in July 2012 originally proposed that the new rules be made effective for new arrangements from the 2012-13 income year, with a choice for taxpayers to apply them in the 2011-12 income year. However, based on a number of submissions that officials received, it is now proposed that the new rules apply for the 2013-14 income year. It is considered that this will be the least disruptive application date for the majority of taxpayers, and will not impact on provisional tax payments for current income years.

However, it is proposed that IFRS taxpayers can make a once-and-for-all election to apply the IFRS accounting treatment to new arrangements from the 2011-12 income year. This would include any designated hedges, the cost of the underlying item and any interest component.

It is also proposed that the tax treatment for any existing arrangements, associated hedges and the underlying property or services for income years before IFRS taxpayers adopt the IFRS tax treatment, or the 2013-14 income year for non-IFRS taxpayers, be validated as follows:

  • The proposed IFRS accounting treatment (as outlined above) has been followed for tax purposes. This includes the treatment of any designated financial arrangements which hedge FX risk on the arrangements; any interest involved; the calculation of the tax book value of the resultant “underlying” property or services; and the determination of the “rights” date (the time when the property or services are recognised for accounting and tax).
  • The tax treatment of the arrangements in foreign currency and the valuation of the underlying property or services in those arrangements have used spot exchange rates at payment and/or rights dates.
  • The tax treatment of the arrangements was otherwise based on the new rules applying from the 2013-14 income year.

Existing agreements will continue to use the tax treatment applied before IFRS taxpayers adopt the IFRS treatment for new arrangements, or the 2013-14 income year, until they mature – that is, the tax treatment of existing arrangements will not be allowed to change to another current or new alternative method. However, IFRS taxpayers will be able to elect that forward exchange contracts (FECs) entered into from the 2013-14 income year (or the 2011-12 income year if they elect as above) that are designated as hedges of the foreign exchange risks on existing arrangements can follow the IFRS accounting treatment for tax. This election will have to be adopted for all new FECs which are designated as hedges of existing arrangements from that income year. The calculation of the resultant “underlying” property or services for these arrangements for tax will include any amounts for FECs subject to the election.


It is intended that draft legislation will be included in a tax bill early in 2013. about the draft legislation is expected to be made available for comment in March 2013.