SAIM4280 - Accrued Income Scheme: excluded transfers: stock lending and ‘repos’

Stock lending and repos

In transactions involving stock lending and repos, the tax charge under other legislation takes precedence over the Accrued Income Scheme.

Stock lending

See CFM17050 for more details on stock lending. ITA07/S653 disapplies the AIS rules in relation to stock lending transactions that are exempted from CGT.

Repos

ITA07/S654 excludes transfers under sale and repurchase agreements (‘repos’) from the accrued income scheme. CFM17150 has more on ‘repos’.

Under a repo, as with stock lending, the economic benefit of the interest on the securities sold and repurchased remains with the original holder of the securities, to whom they return. The original owner is taxed on the interest under other rules so there is no need for the accrued income scheme to apply to either the sale or the repurchase.

ITA07/S654 applies where the transferor is required or entitled to repurchase the securities. It exempts, separately, the transfer under the sale and the transfer under the repurchase (dealing separately with two situations of repurchase).

ITA07/S655 applies where a person connected with the transferor is required or entitled to purchase the securities. It exempts the transfer under the sale by the transferor and the transfer under the purchase by the connected party (again dealing separately with two situations of purchase).

However, in both connected and unconnected cases, the AIS will apply to a repo where ITA07/S607 applies. This concerns the treatment of price the differential on the sale and repurchase of securities in cases involving uncommercial agreements and cases where all risks and benefits from fluctuations in value fall on the interim holder.