Income Tax Act 2007 section 592

No tax credits for borrower under stock lending arrangement

Section 592 prevents a borrower in a stock lending arrangement from claiming a tax credit on dividends that the borrower does not economically retain, but instead passes back to the lender.

• When securities are borrowed under a stock lending arrangement, the borrower may technically receive dividends on those securities during the lending period.
• However, the borrower typically passes the economic benefit of those dividends back to the lender, usually in the form of a manufactured dividend or by other means.
• Because the borrower does not genuinely benefit from the dividend — merely acting as a conduit — the borrower is denied any tax credit that would normally attach to that dividend.
• This rule prevents the artificial creation of tax credits where no real economic entitlement to the dividend income exists.