Income Tax Act 2007 section 506

Special rules for trustees affected by section 733 of ICTA

Section 506 deals with how unit trust trustees are taxed on interest income that has lost its tax exemption because of anti-avoidance rules targeting securities transactions, and how deemed payments by those trustees interact with that loss of exemption.

• Where anti-avoidance rules remove the tax exemption on interest received by unit trust trustees who bought and then sold securities, this section governs how deemed payments made by those trustees are treated.
• A deemed annual payment made by the trustees cannot be treated as paid out of the interest income that has lost its exemption — even though that interest is now chargeable to income tax.
• Relief for the deemed payment is only available to the extent the trustees have "non-affected income", calculated as their modified net income minus the affected interest income.
• This rule takes priority over the general deemed payment rules in section 505(7) because it applies to a very specific type of income.

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