Income Tax Act 2007 section 662

New securities issued with extra return: special rules about payments

Section 662 sets out how to calculate the deemed payment amount when securities are issued in tranches and carry an extra return, replacing the standard calculation rules that would otherwise apply.

• When new securities are issued with an extra return (as described in section 649), the normal rules for calculating the deemed payment on transfer do not apply
• If the subscriber accounts separately to the issuer for the extra return and the rest of the issue price, the deemed payment equals the extra return amount
• If there is no separate accounting, the deemed payment is calculated using the formula I × A / B, which apportions the first interest payment over the relevant period
• The effect is that the recipient of the new securities is only taxed on the interest that accrued during the period they actually held the securities