Income Tax Act 2007 section 633

Payment on transfer without accrued interest

Section 633 deals with how a deemed payment is calculated when securities are transferred without accrued interest — that is, where the transferor retains the right to the next interest payment.

• When securities are transferred without accrued interest, a payment is treated as made by the transferor to the transferee in the interest period containing the settlement day, reflecting the interest that accrues after settlement
• If the transferor separately accounts for gross interest from the settlement day to the next interest payment day, the deemed payment equals that gross interest amount
• If no such accounting arrangement exists, the deemed payment is nil where the settlement day falls on an interest payment day, or otherwise is calculated by time-apportioning the next interest payment using the formula I × A / B
• Special rules apply where there is no identifiable transferor or transferee, and adjustments may be needed for interest in default or transfers to makers of manufactured payments