Income Tax Act 2007 section 976

Arrangements for payments of interest less tax or at specified net rate

Section 976 clarifies how agreements that provide for the payment of interest "less tax" should be interpreted when there is no obligation to deduct income tax from that interest.

• Where any agreement — written or verbal, and regardless of when it was made — provides for interest to be paid without deduction of income tax, any reference to payment "less tax" must be ignored, so the interest is simply payable at its stated rate.
• Where the agreement sets a net rate of interest that is intended to equal a gross rate after notional deduction of income tax, the provision must be read as requiring payment at the gross rate, not the net rate.
• These rules apply to interest on which the recipient is chargeable to income tax under the savings and investment income rules (but not relevant foreign income), and to interest that a corporate recipient must bring into account as a non-trading loan relationship credit.
• The word "provision" is interpreted very broadly and covers primary and secondary legislation, contracts, wills, deeds and any other arrangement, whether made in writing or orally.