Income Tax Act 2007 section 886

Interest paid by recognised clearing houses etc.

Section 886 exempts certain financial market infrastructure entities from the obligation to deduct income tax at source when they pay interest in the ordinary course of their clearing or depository business.

• Recognised clearing houses, recognised investment exchanges, recognised CSDs, and their third-country equivalents are not required to deduct income tax from interest paid on margin or collateral deposited by users of their services.
• The exemption applies where the entity is carrying on business as a central counterparty clearing service provider or as a central securities depository, and the interest is paid in the ordinary course of that business.
• The exemption also covers deemed interest arising from repo transactions (under section 607 or Schedule 13 to Finance Act 2007) where the relevant entity entered into the contracts in its capacity as a clearing service provider or central securities depository.
• A central counterparty clearing service is one where the provider interposes itself between the parties to a transaction, so that each party contracts with the provider rather than directly with each other.