CFM46440 - Deemed loan relationships: repos: tax rules: debtor and debtor quasi-repos: further examples: gross-paying
Example: debtor repo: income arises on securities during term of repo, manufactured payment made (바카라 사이트˜gross-paying바카라 사이트™ transaction)
CFM46350 explains why A has a debtor repo in this case.
- 1/1/09: A (borrower) sells securities to C (lender) for 100.
- 30/6/09: A repurchases the same or similar securities from C for 103. This includes a finance charge of 3 (6 months at 6% per annum).
In addition:
- 31/5/09: Securities pay income of 10 to C (dividend if equities, interest if debt securities).
- 31/5/09: C makes manufactured payment of 10 to A.
| A바카라 사이트™s accounting entries, in accordance with GAAP in addition to the entries at CFM46350: | Â |
|---|---|
| 31/5/09 (real dividend/ interest paid to C, manufactured payment received by A) | Dr Cash 10; Cr Dividend/Interest accrual 10 |
| 1/1/09-30/6/09 (repo 바카라 사이트˜interest바카라 사이트™ accrual): | Dr P&L 3; Cr Financial Liability 3 (the financial liability which has increased to 103 is reduced to nil by the payment of the repurchase price on 30/6/09) |
| Net Profit and Loss result: | Credit 10: income on securities |
| Â | Debit 3: 바카라 사이트˜interest바카라 사이트™ |
Tax Treatment of A
- A is treated as receiving the real income of 10 on 31/5/09. The treatment of this income will depend on whether A is a financial trader, and on the type of security
- As in the example at CFM46430, A바카라 사이트™s finance charge of 3 is treated as interest for loan relationships purposes.
Further points to note
- If the securities are overseas equities, A바카라 사이트™s entitlement to DTR is based on the tax deducted from the manufactured overseas dividend received, not on the tax deducted from the real dividend (CFM46390).
- This transaction corresponds to the creditor repo example at CFM46310 (where C is a company).
- A바카라 사이트™s tax treatment would be the same if, instead of repurchasing the securities from C, A purchased them from another person (바카라 사이트˜D바카라 사이트™). In such a transaction both C and D (if they are companies) would have creditor quasi-repos. CFM46330 gives examples of creditor quasi-repos.