CFM46300 | Deemed loan relationships: repos: tax rules: creditor and creditor quasi-repos: further examples: no income

Example: creditor repo: no income arises on securities during term of repo

CFM46230 explains why C has a creditor repo in this case.

• 1January 2009: A (borrower) sells securities to C (lender) for 100.

• 30 June 2009: A repurchases the same or similar securities from C for 103. This includes a finance return of 3 (6 months at 6% per annum).

C’s accounting entries, in accordance with GAAP in addition to the entries at CFM46230:

• 1 January 2009 to 30 June 2009

  • Dr Financial Asset 3

  • Cr P&L 3 (the financial asset which has increased to 103 is reduced to nil by receipt of the repurchase price on 30 June 09)

• Net Profit and Loss result:

  • Cr 3: ‘interest’

Tax Treatment of C

C’s finance return of 3 is treated as interest for loan relationships purposes (CFM46270).

Further points to note

• This transaction corresponds to the debtor repo example at CFM46430 (where A is a company).

• C’s tax treatment would be the same if, instead of selling the securities to A, C sold them to B. Such a transaction corresponds to the debtor quasi-repo examples at CFM46460 (where A and B are companies).