Issued
30 Sep 2011

Foreign currency amounts - conversion to New Zealand dollars (for six months ending 30 September 2011)

Exchange rates acceptable to IR for converting foreign currency to NZ dollars under the CFC and FIF rules for six months ending 30 Sep 2011.

This article provides the exchange rates acceptable to Inland Revenue for converting foreign currency amounts to New Zealand dollars under the controlled foreign company (CFC) and foreign investment fund (FIF) rules for the six months ending 30 September 2011.

The Income Tax Act 2007 ("2007 Act") requires foreign currency amounts to be converted into New Zealand dollars applying one of the following methods:

Legislation enacted in September 2010 with effect from 1 April 2008 permits the Commissioner to set currency rates and approve methods of calculating exchange rates. The Commissioner can set rates for general use by taxpayers or for specific taxpayers. The Commissioner's ability to set rates and approve methods applies in all circumstances, ie, where the Act does not contain a specific currency conversion rule (sections YF 1(5) and (6), or in circumstances where the Act provides a rate or method for currency conversion (section YF 2)).

Inland Revenue uses wholesale rates from Bloomberg for rolling 12-month average, mid-month actual and end of month. These rates are provided in three tables.

You must apply the chosen conversion method to all interests for which you use the FIF or CFC calculation method in that and each later income year.

To convert foreign currency amounts to New Zealand dollars for any country listed, divide the foreign currency amount by the exchange rate shown. Round the exchange rate calculations to four decimal places wherever possible.

If you need an exchange rate for a country or a day not listed in the tables, please contact one of New Zealand's major trading banks.

Note: All section references relate to the Income Tax Act 2007.

Actual rate for the day for each transaction

The actual rate for the day for each transaction can be used in the following circumstances:

  • Where the 2007 Act does not provide a specific currency conversion rule, then foreign currency amounts can be converted by applying the close of trading spot exchange rate on the date that the transaction which is required to be measured or calculated occurs (section YF 1(2)).
  • Where a person chooses to use the actual rate for the day of the transaction when calculating their FIF income or loss when applying either: the comparative value method, fair dividend rate method, deemed rate of return method or the cost method (section EX 57(2)(a)).
  • Where a person chooses to use the close of trading spot exchange rate to convert foreign income tax paid by a CFC (section LK 3(a)).

Unless the actual rate is the 15th or the last day of the month, these rates are not supplied by Inland Revenue.

The table Overseas currency rates 2012 - end of month provides exchange rates for the last day of the month. These are provided for convenience to assist taxpayers who may need exchange rates on those days.

Currency rates 6 months ending 30 September 2011 - rolling 12-month average table

This table is the average of the mid-month exchange rate for that month and the previous 11 months, ie, the 12-month average. This table should be used where the accounting period or income year encompasses 12 complete months.

This table can be used to convert foreign currency amounts to New Zealand dollars for:

  • FIF income or loss calculated under the accounting profits method (section EX 49(8)); comparative value method, the fair dividend rate method, the deemed rate of return method or cost method (section EX 57)
  • branch equivalent income or loss calculated under the CFC and FIF rules (section EX 21(4)) for accounting periods of 12 months
  • foreign tax credits calculated under the branch equivalent method for a CFC or FIF under section LK 3(b) for accounting periods of 12 months.

Currency rates 6 months ending 30 September 2011 - mid-month actual table

This table sets out the exchange rate on the 15th day of the month, or if no exchange rates were quoted on that day, on the preceding working day on which they were quoted. This table can be used as the basis of the rolling average where the accounting period or income year is less than or greater than 12 months (see Example 4). You can also use the rates from this table as the actual rate for any transactions arising on the 15th of the month.

This table can be used as the basis of the rolling average for calculating:

  • branch equivalent income or loss calculated under the CFC or FIF rules (section EX 21(4)) for accounting periods of less than or greater than 12 months
  • a person's FIF income or loss under: the comparative value method, the fair dividend rate method, the deemed rate of return method or cost method (section EX 57(2)(b)) for accounting periods or income years of less than or greater than 12 months
  • foreign tax credits calculated under the branch equivalent method for a CFC or FIF under section LK 3(b) for accounting periods of less than or greater than 12 months.

Example 1

A taxpayer with a 30 September balance date purchases shares in a Philippine company (which is a FIF but does produce a guaranteed yield) on 7 September 2011. Its opening market value on 1 October 2011 or its closing market value on 30 September 2011 is PHP 350,000. Using the comparative value method and applying the actual rate for the day (section EX 57(2)(a)), the opening market value is converted as follows:

PHP 350,000 ÷ 33.5621 = $10,428.43

(In this example, the rate selected is the month-end rate for September 2011 for PHP. Refer to the table "Overseas currency rates 2012 - end of month".)

 

Example 2

A CFC resident in Hong Kong has an accounting period ending on 30 June 2011. Branch equivalent income for the period 1 July 2010 to 30 June 2011 is 200,000 Hong Kong dollars (HKD), which converts to:

HKD 200,000 ÷ 5.8956 = $33,923.60

(In this example, the rate selected is the rolling 12-month average rate for June 2011 for HKD. Refer to the table "Overseas currency rates 2012 - rolling 12-month average and mid-month".)

 

Example 3 

A resident individual with a 30 September 2011 accounting period acquires a FIF interest in a Japanese company on 1 October 2010 for 10,500,000 yen. The interest is sold in September 2011 for 10,000,000 yen. Using the comparative value method and applying section EX 57(2)(b), these amounts are converted as:

JPY 10,500,000 ÷ 63.5987 = $165,097.71
JPY 10,000,000 ÷ 63.5987 = $157,235.92

(In this example, the rolling 12-month rate for September 2011 has been applied to both calculations.)

 

Example 4

A CFC resident in Singapore was formed on 21 April 2011 and has a balance date of 30 September 2011. During the period 1 May 2011 to 30 September 2011, branch equivalent income of 500,000 Singaporean dollars was derived. For the conversion to New Zealand dollars the taxpayer chooses the method set out in section EX 21(4)(b).

  1. Calculating the average monthly exchange rate for the complete months May-September 2011:
    0.9805 + 0.9986 + 1.0310 + 1.0004 + 1.0228 = 5.0333
    5.0333 ÷ 5 = 1.0067
  2. Round exchange rate to four decimal places: 1.0067
  3. Conversion to New Zealand currency:
    SGD 500,000 ÷ 1.0067 = $496,672.30

(In this example, the rates are from the table "Overseas currency rates 2012 - rolling 12-month average and mid-month", from May to September 2011 inclusive for SGD.)