CFM17550a - Repos: FA 2007 rules for companies: creditor repo (no income) example
This guidance describes the corporation tax treatment of sale and repurchase arrangements (“repos”) where the initial sale of securities takes place on or after 1 October 2007
Example: Creditor repo – no income arises on securities during term of repo
(
CFM17530a explains why C has a creditor
repo in this case.)
Transaction
As in
CFM17530a
- 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 return of 3 (6 months at 6% per annum).
| C’s accounting entries, in accordance with
GAAP
In addition to the entries at CFM17530a: |
|
| 1/1/09-30/6/09 (repo “interest”
accrual):
| Dr Financial Asset 3; Cr P&L 3 (the financial asset which has increased to 103 is reduced to nil by receipt of the repurchase price on 30/6/09) |
| Net Profit and Loss result: | Credit 3: “interest” |
Tax Treatment of C
C’s finance return of 3 is treated as interest for loan
relationships purposes (
CFM17544).
Further points to note
This transaction corresponds to the debtor repo example at
CFM17528a (where A is a company).
C’s tax treatment would be the same if, instead of selling
the securities to A, C sold them to B. Such a transaction
corresponds to the debtor
quasi-repo examples at
CFM17528d (where A and B are
companies).
