Overview
1777.This Chapter contains provisions about the treatment of the difference between the sale price and the repurchase price in relation to sale and repurchase agreements. It is based on sections 730A and 730B of ICTA, with supplementary provisions based on section 737E of ICTA.
1778.Section 737A of ICTA deals with repos which straddle an ex-dividend date; if it applies, there is a deemed manufactured payment to which Schedule 23A to ICTA applies. Section 737A is rewritten in Chapter 4 of this Part.
1779.For the purposes of section 730A of ICTA, by contrast, it does not make any difference whether the repo straddles an ex-dividend date, and section 730A does not have a direct connection with Schedule 23A. If a sale and repurchase agreement is within section 730A, the difference between the sale price and the repurchase price is deemed to be a payment of interest on a deemed loan. If the other conditions are met, this deemed interest may come within the withholding obligation of section 349(2) of ICTA. Section 349(2) is rewritten in Chapter 3 of Part 15 (deduction of income tax at source: deduction from certain payments of yearly interest).
Section 607: Treatment of price differences under repos
1780.This section deals with the treatment of price differences under repos. It is based on sections 730A(1), (2), (3) and (8A), 730B and 737B of, and paragraph 1(1) of Schedule 23A to, ICTA.
Section 608: Exceptions to section 607
1781.This section disapplies section 607 in certain cases. It is based on section 730A(8) of ICTA.
1782.It disapplies section 607 in cases where:
the agreement or agreements for sale and repurchase are not what one would expect of persons dealing at arm’s length; or
the interim holder has all the benefits and risks from fluctuations in the market value of the securities between their sale and repurchase.
Section 609: Additional income tax consequences of price differences
1783.This section deals with some additional consequences of section 607. It is based on section 730A(4), (4A) and.(7) of ICTA.
Section 610: Repurchase price in deemed manufactured payment case
1784.This section deals with the interaction between Chapters 4 and 5 of this Part. It is based on sections 730A of ICTA.
Section 611: Power to modify Chapter in non-arm’s length case
1785.This section enables the Treasury to make regulations modifying the provisions of this Chapter in cases where agreements for sale and repurchase are not what one would expect of persons dealing at arm’s length. It is based on section 737E of ICTA.
1786.Section 737E(3) of ICTA does not mention section 730B of ICTA. But section 611(1), in rewriting section 737E(3), includes within its scope section 610, which rewrites section 730B. This does not mean that section 611(1) changes the law.
1787.Since section 737E(3) refers to section 730A and section 730B has the sidenote “interpretation of section 730A”, the omission of “section 730B” from section 737E(3) is not significant. Section 737E(3) enables the Treasury to modify section 730B indirectly (for example, by making a regulation saying that, despite anything in section 730B, section 730A applies as if it said …).
