Income Tax Act 2007

579 Allowable deductions: matching

(1) This section applies to a person who pays manufactured interest as mentioned in section 578(1).

(2) The gross amount of the manufactured interest is allowable for income tax purposes as a deduction in calculating the net income of the payer (see Step 2 of the calculation in section 23).

This is subject to subsection (3).

(3) It is allowable only so far as—

(a) it is not otherwise deductible, and

(b) it falls within subsection (4), (6) or (7).

(4) An amount falls within this subsection so far as the payer—

(a) receives either the periodical payment of interest which is represented by the manufactured interest or a payment which is representative of the periodical payment of interest, and

(b) is chargeable to income tax on the payment received.

(5) See section 679 (interest on securities involving accrued income losses: general) for the amount chargeable to income tax in a case where that section applies.

(6) An amount falls within this subsection so far as—

(a) the payer is, by virtue of Chapter 2 of Part 12 (accrued income profits), chargeable to income tax on qualifying accrued income profits in respect of transfers of securities, and

(b) the transfers are subject to the arrangement giving rise to the payment of manufactured interest.

(7) An amount falls within this subsection so far as the payer—

(a) is treated under section 607 (treatment of price differences under repos) as receiving a payment of interest in respect of the securities, and

(b) is chargeable to income tax on the payment.

(8) See section 580 for a further qualification to the rule in subsection (2).

(9) For the purposes of subsection (3)(a) an amount is deductible if it is—

(a) deductible in calculating any of the payer’s profits or gains for income tax purposes, or

(b) deductible for those purposes in calculating the net income of the payer.

(10) In this section “qualifying accrued income profits” means accrued income profits which are treated as made—

(a) under section 628(5), or

(b) under section 630(2) in respect of a transfer of variable rate securities.