Income Tax Act 2007 section 845

Extra return to be treated as interest

Section 845 deals with the tax treatment of an "extra return" that arises when new securities of the same kind as existing securities are issued at a higher price to reflect interest already accruing on the original securities.

• When new securities are issued of the same kind as existing ones, the issue price may be increased to reflect interest that has already accrued on the original securities — this increase is called the "extra return"
• The extra return must equal the interest that would be payable for the relevant period on an equivalent number of the original securities
• The extra return is treated as interest for income tax purposes, meaning it is subject to the same tax rules as interest, including any requirements for tax deduction at source
• The issuer of the new securities receives no tax relief for paying the extra return