What is a debtor repo under section 925B of the Income Tax Act 2007?

A debtor repo is a financing arrangement where one party sells securities to another with an agreement to repurchase them later. The seller effectively borrows money using the securities as collateral. During the repo period, income arising on the securities may be passed back to the borrower or reflected in the repurchase price.

How does section 925B treat companies involved in debtor repo arrangements?

Section 925B deems borrower companies in debtor repos to have received manufactured payments. These manufactured payments stand in place of actual income on the securities, such as dividends or interest coupons passed back by the buyer. This ensures tax treatment follows the economic reality of the repo transaction.

What is a manufactured payment in the context of a debtor repo?

A manufactured payment is a payment that substitutes for actual income on securities involved in a repo. For example, when the buyer passes back an amount equivalent to a dividend or interest coupon to the borrower, this is treated as a manufactured payment and must be included in the borrower's tax computations.

What are the practical tax implications of section 925B for companies in repo transactions?

Even though a company may not technically own the securities during the repo period, it is still treated as receiving manufactured payments under section 925B. These deemed manufactured payments must be recognised and reported in the company's tax computations, ensuring the economic return is properly brought into charge to tax.

Income Tax Act 2007 section 925B

Debtor repos

Section 925B deals with the tax treatment of companies involved in debtor repo arrangements, deeming them to receive manufactured payments in certain circumstances.

Where a company enters into a debtor repo arrangement, it is treated as receiving manufactured payments for tax purposes.
The company in question is the borrower under the repo arrangement — that is, the party that has effectively borrowed funds using securities as collateral.
The deemed manufactured payment arises because the repo structure replicates the economic effect of receiving interest or dividend income on the underlying securities.
The rules ensure that the borrower company is taxed appropriately on amounts that are economically equivalent to payments on the securities involved in the repo.

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