Income Tax (Trading and Other Income) Act 2005 section 452C

Conversion of interest-bearing corporate securities into corporate strips

Section 452C defines what it means to convert an interest-bearing corporate security into corporate strips, and sets out the conditions that must be met for such a conversion to be recognised.

• A conversion occurs when a person replaces an interest-bearing corporate security with two or more separate assets through a scheme or arrangement, where each asset represents or secures one or more of the remaining payments under the original security
• Each separate asset must satisfy Condition A (it represents or secures one or more stripped payments) and, taken together, all the assets must satisfy Condition B (they collectively cover every remaining interest and principal payment due under the original security)
• If a person sells or transfers the right to one or more remaining payments under a corporate security, this is treated as though they had first converted the security into strips and then sold or transferred one or more of the resulting assets
• Once a dividend balance has been struck on the security, any payment due in respect of that dividend is no longer treated as a remaining payment for the purposes of these rules