CFM46360 - Deemed loan relationships: repos: tax rules: debtor quasi-repo

Definition of ‘debtor quasi-repo’ (CTA09/S549)

A company (‘the borrower’) has a debtor quasi-repo if it does not have a debtor repo, and if all of the following conditions are met:

  • Condition A: under an arrangement the borrower receives from another person (‘the lender’) any money or other asset (‘the advance’).
  • Condition B: in accordance with GAAP the accounts of the borrower record for the period in which the advance is received a financial liability in respect of the advance.
  • Condition C: under the arrangement or another arrangement, the borrower or any other person sells securities at any time.
  • Condition D: that arrangement or other arrangement
  • provides that the borrower will or may become entitled or obliged subsequently to buy those or any other securities, or
  • makes ‘other relevant provision’ whereby a person other than the borrower will or may become entitled or obliged subsequently to buy the securities.

‘Other relevant provision’ means provision for the receipt of money or some other asset from the borrower (or the discharge of a liability owed to the borrower, whether by offset or otherwise) for the purpose of enabling the other person to make the subsequent purchase. For instance

  • A borrower may pay money to a person to enable that person to buy the securities; or
  • That person may pay money to the borrower, because the value of the securities that the person will acquire is greater than the value of the obligation that it assumes to pay the purchase price.
  • Condition E: in accordance with GAAP, the buying of the securities by the borrower or the receipt of the asset from the borrower (or the discharge of the liability owed to the borrower) would extinguish the financial liability in respect of the advance that has been recorded in the accounts of the borrower.

A company also has a debtor quasi-repo if it is a member of a partnership that meets these conditions.

There are examples of debtor quasi-repos at CFM46370.