Income Tax Act 2007 section 602

Deemed manufactured payments: repos

Section 602 activates the manufactured payments rules when a repo transaction meets the conditions set out in section 601, treating certain amounts as manufactured payments of interest or dividends.

• When a repo arrangement satisfies the conditions in section 601, any interest or dividends paid on the securities during the repo period are treated as manufactured payments made by the interim holder to the original holder.
• For repos involving Real Estate Investment Trust (REIT) shares, the deemed manufactured payment is treated as a manufactured payment of a REIT distribution (an MPID) where appropriate.
• Only the first person to whom the securities were transferred under the repo can claim a tax deduction for the deemed manufactured payment — subsequent holders in a chain cannot.
• These rules ensure that the economic effect of interest or dividends passing through a repo is properly reflected for tax purposes, preventing misuse of deductions along a chain of transactions.