Income Tax Act 2007 section 661

Successive transfers with unrealised interest in default

Section 661 reduces the unrealised interest value used in calculating accrued income profits where the transferor originally acquired the securities together with a right to receive unrealised interest that was already in default.

• Where the transferor ("T") acquired securities carrying unrealised interest in default and later transfers them, the unrealised interest value used in the accrued income calculation is reduced by the value of that right on the day T acquired the securities.
• If T has received some or all of the defaulted interest in the meantime and was liable to income tax on it, the reduction is itself decreased by the amount T actually received, reflecting that T has already recouped part of the price paid for that right.
• If T has not received any of the defaulted interest, the full earlier value is given as a reduction, giving T complete credit for the consideration originally paid for the right to that interest.
• The reduction can never exceed the unrealised interest value itself — if the calculated reduction is greater, the unrealised interest value is simply treated as nil.