Income Tax Act 2007 section 593

No tax credits for interim holder under repo

Section 593 prevents a person who temporarily holds securities under a sale and repurchase (repo) arrangement from claiming tax credits on dividends received during the period of the repo, where that person does not economically benefit from the dividend.

• In a repo arrangement, one party sells securities to another and agrees to buy them back later; the temporary buyer is called the "interim holder"
• If a dividend is paid on the securities while the interim holder has them, the interim holder may receive the dividend but is obliged to pass the economic value back to the original seller, typically through a manufactured dividend
• Because the interim holder does not genuinely benefit from the dividend — effectively just passing it through — this section denies them the right to claim any associated tax credit
• This rule ensures that tax credits are only available to the party who bears the true economic exposure to the underlying shares, rather than to someone who holds them temporarily under a financing arrangement