Income Tax Act 2007 section 564Q

Deduction of income tax at source under Part 15

Section 564Q ensures that the rules requiring income tax to be deducted at source from interest payments apply equally to payments of alternative finance return, so that Sharia-compliant and other alternative finance products are taxed consistently with conventional interest-bearing arrangements.

• Alternative finance arrangements are treated as deposits, and the alternative finance return is treated as interest for the purposes of the income tax deduction at source rules applying to deposit-takers and building societies.
• This treatment applies to all relevant alternative finance arrangements except purchase and resale arrangements where the second purchaser is not a financial institution.
• References to interest in the funding bonds rules also include alternative finance return, ensuring equivalent treatment where returns are satisfied by the issue of bonds rather than cash.
• The broader deduction at source rules in Chapters 3 to 5 of Part 15 (covering payments by companies, other persons, and certain securities) also apply to alternative finance return in the same way as they apply to interest.