Income Tax Act 2007 section 659

Transfers with or without accrued interest: interest in default

Section 659 adjusts the way accrued income payments are calculated when the issuer of securities has failed to pay interest that is due, meaning the right to receive that interest is worth less than the interest itself.

• This section applies where interest on securities is not accounted for separately in the transfer price, there has been a failure to pay interest due, and the value of the right to receive the interest is consequently less than the interest payable
• When interest is in default, the calculation of accrued income payments must use the reduced value of the right to receive the interest, rather than the full amount of interest that would otherwise be payable
• The adjustment applies on the interest payment day that falls on or after the settlement day of the transfer
• This ensures that accrued income profits or losses reflect the economic reality of what the interest entitlement is actually worth, rather than its face value

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