CFM46330 - Deemed loan relationships: repos: tax rules: creditor and creditor quasi-repos: further examples: creditor quasi-repo
Example: creditor quasi-repos
CFM46250 explains why both C and D have a creditor quasi-repo in this case.
- 1/1/09: A sells securities to C for 100.
- 30/4/09: C novates its rights and obligations under the repo to D (also a lender), for which it receives 102 from D. This represents the advance of 100 made by C, plus a finance return of 2 (4 months at 6% per annum).
- 30/6/09: A purchases the same or similar securities from D for 103. This includes a further finance return of 1 (2 months at 6% per annum).
Treatment of C
| Accounting entries, in accordance with GAAP in addition to the entries at CFM46250: | |
|---|---|
| 1/1/09-30/4/09 (repo ‘interest’ accrual): | Dr Financial Asset 2; Cr P&L 2 (the financial asset which has increased to 102 is reduced to nil by receipt of the novation payment on 30/4/09) |
| Net Profit and Loss result: | Credit 2: ‘interest’ |
Tax Treatment
C’s finance return of 2 is treated as interest for loan relationships purposes (CFM46270).
Treatment of D
| Accounting entries, in accordance with GAAP in addition to the entries at CFM46240: | |
|---|---|
| 30/4-30/6/09 (repo ‘interest’ accrual): | Dr Financial Asset 1; Cr P&L 1 (the financial asset which has increased to 103 is reduced to nil by receipt of the repurchase price on 30/6/09) |
| Net Profit and Loss result: | Credit 1: ‘interest’ |
Tax Treatment
D’s finance return of 1 is treated as interest for loan relationships purposes (CFM46270).
Further point to note
This transaction corresponds to the debtor repo example referred to in the footnote to CFM46430 (if A is a company).