Taxation of Financial Arrangements On 1 April 2018, ABC purchased a 3-year, US Dollar bond issued by CXC Transport Corporation of the USA with a par value of US$1,000 and a coupon interest rate of 5.0%, paid annually in arrears. ABC paid US$973.27 for this bond giving a yield-to-maturity of 6%. The NZD/USD exchange rate was 0.7100 on that day.

The following events subsequently occurred:

15 May 2018 CXC Transport Corporations credit rating was downgraded by Standard and Poors. The market price for the companys bonds immediately dropped.

31 March 2019 ABC received the first interest coupon of US$50.00 and converted it into New Zealand Dollars at the prevailing exchange rate of NZD/USD 0.7300 on this day. The closing market value of the bond on this day was US$945.60. The interest income from the bond for the year ended 31 March 2016 was US$58.40 calculated on a yield-to-maturity basis.

6 May 2019 ABC sold the bond for US$955.40 (including accrued interest). This amount that ABC received for the bond was US$30.00 less than it would have been if the CXC Transport credit rating had not been downgraded in May 2015. The NZD/USD exchange rate was 0.7700 on this day.

Calculate ABCs taxable income from this bond for the income years ended 31 March 2019 and 2020, respectively, assuming that ABC is an individual with a portfolio of bonds worth NZ$3 million. Calculate your answers to the nearest cent. Clearly specify whether each amount calculated is deemed to be income or expenditure incurred. If the amount is expenditure incurred, specify whether it would be an allowable deduction for income tax purposes to ABC.