I bought an Australian Government Bond and paid above par, because the Coupon rate is above the market interest rate.
Therefore, the coupon payments are partially a return of Principal.
How do I calculate this, and how do I report it to the ATO?
Ok that helps contextualise the situation.
For Treasury Bonds (that is, NOT Treasury Indexed Bonds) and assuming you're not subject to the TOFA rules.
Then the coupon = interest - that is the full 5.75% coupon you receive is classified as interest
On maturity - you record a revenue loss of $14,000
This also assumes you're an investor and not a trader.
Deloitte did quite a good write up here though it is a little old.
Are you sure it's a return of principal? When you hold to maturity, isn't it still paying out the face value of the bond.
Coupon vs interest rate may change the value on the market for that particular bond, but that doesn't affect either the interest payment (which you record as income) or the face value of the bond.
In that sense, no adjustment should be required.
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