Section 730A (8), or as the case may be, ITA07/S608 (3) provides
that section 730A (ITA07/S607) will not apply where all the risks
and benefits from price movements in the securities are transferred
to the interim holder. This ensures that section 730A or ITA07/S607
will not for instance apply to “bed and breakfasting”
transactions where a person sells securities cum dividend and under
the same or a related agreement repurchases ex dividend. In this
case, and other cases where the repurchase price relates in some
way to the value of the securities at the time of repurchase, the
person buying the security does take some or all of the risk of
price movement in the underlying security.
Section 730A or ITA07/S607 will also not apply where the
agreement is not such as would be entered into by persons dealing
at arm’s length.
Section 730A (9) (now ITA07/S610) ensures that the
calculation of the deemed interest under Section 730A (ITA07/S607)
is done by reference to the adjusted repurchase price in cases
where section 737A applies (ITA07/S602). Section 737A or ITA07/S602
normally applies to the “net paying repo”
CFM17190 where the repo does not require
manufactured payments to be made. See
CFM17255 for more on section 737A or
ITA07/S602.
Where section 730A or ITA07/S607 applies then section 730A(4)
(ITA07/S609 (2))treats the repurchase price as reduced by the
amount of deemed section 730A(2) (ITA07/S607 (3)) interest for
other tax purposes. This ensures that there is no double charge or
relief on the price differential. The adjusted repurchase price
will apply for all other purposes of the Tax Acts and will equal
the amount paid by the interim holder on the initial acquisition
from the original owner so there is then no net difference for
other tax purposes. See also
CFM17260.
