Section EW 62 — Income Tax Act 2007: When and how calculation of cash basis adjustment required

EW 62 When and how calculation of cash basis adjustment required Choosing spreading method (1) A cash basis person who chooses to use a spreading method must calculate a cash basis adjustment for the income year in which they choose to use a spreading method as if they had ceased to be a cash basis person. Person becoming cash basis person (2) A person who becomes a cash basis person in an income year must calculate a cash basis adjustment for a financial arrangement to which they— (a) are a party at the end of the income year; and (b) were a party at the end of the previous income year. Exclusions (3) However,— (a) a person who becomes a cash basis person in an income year and who chooses to continue using a spreading method in the income year must not calculate a cash basis adjustment; and (b) a person who becomes a cash basis person in an income year must not calculate a cash basis adjustment for a financial arrangement that is already being accounted for on a cash basis. Person ceasing to be cash basis person (4) A person who ceases to be a cash basis person in an income year must calculate a cash basis adjustment for a financial arrangement to which they— (a) are a party at the end of the income year; and (b) were a party at the end of the previous income year. Exclusion (5) However, a person who ceases to be a cash basis person must not calculate a cash basis adjustment for a financial arrangement that is already subject to a spreading method. Person not cash basis person if adjustment not made (6) A person who would be a cash basis person for a financial arrangement if they calculated a cash basis adjustment for it, and who does not calculate the adjustment, is not a cash basis person for the arrangement. Cash basis adjustment (7) A person calculates a cash basis adjustment using the formula in section EW 63 . Adjustment is income or expenditure (8) The only income or expenditure under the financial arrangement for the income year to which the formula is applied is the cash basis adjustment. Positive or negative cash basis adjustment (9) A cash basis adjustment is,— (a) if positive, income, under section CC 3(1) (Financial arrangements), derived by the person in the income year for which the calculation is made: (b) if negative, expenditure incurred by the person in the income year for which the calculation is made. Defined in this Act: cash basis person , financial arrangement , income , income year , spreading method , Compare: 2004 No 35 s EW 62