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Accrued income scheme—general

E1.1501 Accrued income scheme—overview

Without special legislation, a person who sells a security immediately before it is due to go ex-div will avoid paying tax on the interest that has accrued up to the date of sale, although the amount of that interest is included in the sale price. The purchaser of the security, on the other hand, will pay tax on the whole of the interest although the value of most of it was included in the purchase price.

Legislation was issued in 1985¹ to deal with the taxation treatment of accrued interest. These provisions operate so that:

1. Ìý

   •ÌýÌýÌýÌý if a security is transferred with accrued interest, the Accrued Income Scheme treats the additional amount received as income. It is called an 'accrued income profit' and is taxed as interest

2. Ìý

   •ÌýÌýÌýÌý if a security is bought with accrued interest, the next interest payment received will be taxable. But, because an extra amount has already been paid to