Income Tax Act 2007 section 608

Exceptions to section 607

Section 608 sets out the circumstances in which the anti-avoidance rules for sale and repurchase of securities under section 607 do not apply.

• Section 607 charges tax on disguised interest arising from sale and repurchase arrangements, but section 608 provides two exceptions where those rules are switched off.
• The first exception applies where the sale and repurchase agreement is not on arm's length terms — that is, the arrangements are not of the kind that unconnected parties dealing commercially would enter into.
• The second exception applies where the interim holder (the person who buys the securities under the arrangement) bears all the genuine economic risks and enjoys all the benefits from changes in the market value of the securities during the period between sale and repurchase.
• In practice, these exceptions ensure that section 607 only catches arrangements that are genuinely financing transactions in substance, rather than true sales where real market risk passes to the buyer.