Tax on bonds

Duke of Marmalade said:
Interesting angle. I presume that if a corporation issued a zero coupon bond there would be taxable imputed income, otherwise it would be a crude tax reduction scam. I would also presume that this accrual of interest would be hard coded from inception and would not vary with market movements, these being regarded as capital.
Now the TB31 is not so much a zero coupon bond as a bond with zero coupons, i.e. issued at c. par when the interest rate happened to be zero.
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Why would there be? Nobody would buy this theoretical bond in today’s environment and then the value would immediately collapse.
 
Gordon Gekko said:
Why would there be? Nobody would buy this theoretical bond in today’s environment and then the value would immediately collapse.
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I think the key thing is being issued at par or close thereto. TB27 0.25% is probably a better example. It was issued when interest rates were around that level. It is now standing at a 2% p.a. yield which would be 0.25% p.a. taxable income plus 1.75% p.a. tax free gain.
 
Gordon Gekko said:
Zero coupon bonds don’t pay interest!

Redemption at par (100) when you’ve bought it at a discount is a capital event.
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Can you give any reference or source for your finding please? That's what I am trying to find. That's the purpose for my query. I am not convinced there is no imputted interest type treatment in Ireland, despite feedback received.
 
TravisT said:
Can you give any reference or source for your finding please? That's what I am trying to find. That's the purpose for my query. I am not convinced there is no imputted interest type treatment in Ireland, despite feedback received.
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It’s often quite difficult to disprove something that’s nonsensical.

If there’s no interest (i.e. no income/coupon), then there’s no imputed interest/income.

You’re not going to find something that says “if there’s no income, there’s no deemed income”.
 
Gordon Gekko said:
If there’s no interest (i.e. no income/coupon), then there’s no imputed interest/income.
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There is imputed interest because there's no coupon. Whether it's taxable as income or gains is a different question.

Bonds are debt. If I lend you €90 and you pay me back €100 next week, have I made a capital gain or have I charged you €10 interest?
 
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a rate used to calculate the amount of interest that would have been paid in a particular period, even if none had been paid. For example, imputed interest is used in relation to bonds where all interest is received when they are paid back.
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I repeat: TB 31 is not a ZCB but a full interest paying bond where the interest rate is 0%, as this is what was needed to be paid when it was issued at par. It is treated as a 0% interest paying bond throughout its life and any profits/losses are capital.
 
Corola said:
There is imputed interest because there's no coupon. Whether it's taxable as income or gains is a different question.

Bonds are debt. If I lend you €90 and you pay me back €100 next week, have I made a capital gain or have I charged you €10 interest?
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There is no imputed interest!

And that’s not how bonds work!

The ‘€100’ moves around as interest rates move around.

The value of €100 paying 0% interest is different if general interest rates are 3% or 0%.
 
You lend me €100 at an agreed interest rate of 0% for 7 years. Then interest rates increase from 0% to 3%. So the €100 debt paying 0% is suddenly worth €80. Johnny down the road buys the debt for €80. Then he gets €100 back from me at the end of the 7 years. Johnny makes a €20 capital gain. There is no ‘imputed interest’. There is no income. There is no coupon. There is no interest. There’s simply a capital gain.
 
I can go on the Treasury website today and buy a new T-bill from the US Government with a face value of $100 at a discounted price. The difference is the imputed interest.

Interest rates moving around and Johnny buying it off me later doesn't change that.
 
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@Duke - what is 'TB 31'? (treasury bond 31?) What exactly is that?

@gordon, here's the explanation. "The difference between the discounted amount you pay for a zero coupon bond and the face amount you later receive is known as "imputed interest." This is interest that the IRS considers to have been paid, even if you haven't actually received it. Therefore, the IRS requires that you pay tax on this "phantom" income each year, just as you would pay tax on interest you received from a coupon bond" https://www.finra.org/investors/insights/zero-coupon-bonds
 
TravisT said:
@Duke - what is 'TB 31'? (treasury bond 31?) What exactly is that?

@gordon, here's the explanation. "The difference between the discounted amount you pay for a zero coupon bond and the face amount you later receive is known as "imputed interest." This is interest that the IRS considers to have been paid, even if you haven't actually received it. Therefore, the IRS requires that you pay tax on this "phantom" income each year, just as you would pay tax on interest you received from a coupon bond" https://www.finra.org/investors/insights/zero-coupon-bonds
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This is Ireland, so none of that is relevant.
 
Well, it's relevent to my question and the purpose of this discussion..which was whether imputted interest from US zero coupon treasury bonds are liable for interest income in Ireland, or if the imputted interest is instead liable for CGT.
 
TravisT said:
Well, it's relevent to my question and the purpose of this discussion..which was whether imputted interest from US zero coupon treasury bonds are liable for interest income in Ireland, or if the imputted interest is instead liable for CGT.
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And you’ve been told on numerous occasions that it isn’t and that there’s no concept of imputed interest here in Ireland. You seem to be looking for an online reference for something that just doesn’t exist.
 
TravisT said:
@Duke - what is 'TB 31'? (treasury bond 31?) What exactly is that?
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See below. I myself prefer TB27 0.20% despite its taxable coupon, note that the coupon is actually .2159% despite the name (I attach a spreadsheet for calculating the after tax yield on TB 27). On the tax debate there is no imputed interest on any of these bonds as they were all issued at or around par and the coupon represents a fair interest, which happened to be 0% when TB 31 was issued. I feel sure that if a corporation issued debt at below par the Irish Revenue would regard the difference as imputed interest.
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Duke of Marmalade said:
Now the TB31 is not so much a zero coupon bond as a bond with zero coupons, i.e. issued at c. par when the interest rate happened to be zero.
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That's right. Bonds issued with a coupon rate of 0% are an anomaly of the zero to negative interest rate environment of the time. They are in theory paying a coupon but the coupon is €0.

Whereas zero-coupon bonds are bonds issued at less than par in a normal (positive) interest rate environment and don't pay any coupons.
 
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I think @TravisT has an interesting question. If something is treated as income in the foreign country where it arises, would it be treated as income when taxed in Ireland even if it would have been treated as a capital gain had it happened in Ireland?

If not, then it complicates things. For example, I think REITs in America report what percentage of the dividend they pay should be treated as a capital gain and what percentage should be treated as income. If an Irish investor receives those dividends, they couldn't use the REIT's reported percentages because there might be differences in what is considered a capital gain or income between the USA and Ireland (as seems to be the case with the zero coupon bonds).

On the other hand, I can imagine that there are countries that don't have a notion of "income" and "capital gain", and perhaps countries that have other concepts that don't map to either "income" or "capital gain", and so if the origin country's treatment were used to decide what to declare it as, then that could also create problems.
 
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