Income Tax Act 2007 section 635

Payment on transfer of variable rate securities

Section 635 deals with how accrued income is calculated when variable rate securities are transferred and the settlement day falls within an interest period.

• When variable rate securities are transferred with the settlement day falling within an interest period, a payment is treated as made to the transferor for that period, calculated on a "just and reasonable" basis rather than by time apportionment
• No person is treated as making this deemed payment, and it does not affect the transferee's calculation of accrued income profits or losses
• This is an anti-avoidance measure targeting securities where interest rates are structured to vary widely, which would make a standard time apportionment formula produce misleading results
• No exemption is available for interest received by the transferee, and transfers where the settlement day falls outside an interest period are dealt with separately under section 630