Income Tax Act 2007 section 564G

Investment bond arrangements

Section 564G defines the conditions that must be met for arrangements to qualify as "investment bond arrangements" under the alternative finance rules, allowing them to be taxed in a manner comparable to conventional loan relationships.

• A bond-holder pays capital to a bond-issuer, who uses it to acquire specified assets ("bond assets") intended to generate income or gains, with the arrangement running for a defined "bond term" after which remaining assets are sold and capital is repaid
• The bond-issuer must pay "additional payments" to the bond-holder that do not exceed a reasonable commercial return on a loan of the capital, and must manage the bond assets with a view to generating sufficient income to cover both the redemption and additional payments
• The arrangements must be transferable, listed on a recognised stock exchange or admitted to trading on a multilateral trading facility of a regulated recognised stock exchange, and treated wholly or partly as a financial liability under international accounting standards
• Considerable flexibility is built in: bond assets can be any kind of property, the additional payments can be fixed or variable, the redemption payment may be reduced if asset values fall, and the bond-holder may or may not have the right to terminate early — but the section is subject to the arm's length exclusion in section 564H