Introduction Background
18.These changes close a tax avoidance scheme in the area of stocklending arrangements.
19.The scheme attempts to prevent a tax charge arising when a financial trader is involved in stock lending. In those circumstances a manufactured payment made to represent the dividend or interest arising on the securities which have been lent would be taxed as trading income.
20.Section 596 ITA 2007 and section 812 CTA 2010 apply where there is no provision for a manufactured payment to be paid to represent the dividends or interest received on the securities. In those circumstances, section 596 or section 812 apply so that a payment is deemed to be made to the lender, and the stock lender is taxed accordingly. The tax position of the borrower is not affected.
21.The scheme attempts to avoid that charge by arranging for some manufactured payment to be made, but also for part of the payment representing the dividend to be received in a non-taxable form. The new legislation will provide that when any benefit is received representing the dividend, then it will give rise to a charge on the stock lender as though an actual manufactured payment had been received.