Milk Price Futures Contract determination consultation

Advisers have sought assistance from Inland Revenue on the correct tax treatment of MKP Milk Price Futures Contracts, which are derivative contracts traded on the NZX Derivatives Market.

Inland Revenue officials have released for feedback a draft general financial arrangements determination, Draft determination G31 - NZX Milk Price Futures Contracts: an expected value approach.

It proposes an expected value approach to the taxation of these contracts when they are entered into by farmers who do not use IFRS and who enter into the contracts for the sole purpose of hedging the price received for all or part of their anticipated future milk production. Inland Revenue proposes to release this determination in order to clarify and simplify the tax treatment of these contracts. The finalised determination is intended to apply to all such transactions entered into on or after 1 April 2020.

Officials invite submissions on the proposed determination. In particular, we are seeking submissions on:

- the nature of the legal relationship between farmers and their brokers and the obligation of farmers to pay initial margin and to pay and receive variation margin;

- what in commercial practice actually occurs in relation to a farmer’s payment of initial margin and payment and receipt of variation margin; and

- any practical outcomes you expect from following this determination compared to your current approach.

Send your submissions to [email protected] with “Milk price futures financial arrangements determination” in the subject line.

The closing date for submissions is 13 December 2019.