Income Tax Act 2007 section 649

New securities issued with extra return

Section 649 deals with the accrued income scheme treatment when an issuer makes a further tranche of securities identical to existing ones, and the new securities carry an extra return to reflect interest already accruing on the original securities.

• When new securities of the same kind as existing ("old") securities are issued and their price includes an extra return reflecting accrued interest on the old securities, the new securities are treated as transferred with accrued interest to the purchaser on the day of issue.
• The extra return must equal the interest that would be payable for the period from the day after the last interest payment date (or the original issue date if there is none) up to the new issue date, calculated on the same number of securities as the new ones being issued.
• This section does not apply where the new securities are variable rate securities — and because the new tranche may pay a different effective rate of interest on the first interest payment date, they may well fall within that definition.
• Although the new securities are treated as transferred with accrued interest, no person is treated as the transferor; the settlement day is taken to be the new issue day, and section 662 determines the amount of the deemed payment on that transfer.