Guide A: Guide to thin capitalisation

Exemption for certain foreign controlled consolidated groups

A debt deduction is not disallowed under the thin capitalisation rules where, throughout an income year, either of the following apply:

• the head company is both a foreign controlled Australian company and an ADI (ignoring the application of the consolidation rules; that is, classify the ADI as if it were a separate entity) and has not made a choice to treat an Australian branch as part of itself for thin capitalisation purposes
• the head company is a foreign controlled Australian company that
• beneficially owns all the membership interest in a member of the group that is both a foreign controlled Australian entity and an ADI throughout that period, and
• would (ignoring the application of the consolidation rules) have no other assets and no debt capital.

However, if at least one other member of the group is an outward investing entity (ADI or non-ADI) throughout the year (classifying the member as if it were a separate entity), the exemption does not apply.

A debt deduction is further not disallowed if the above conditions are satisfied for part of an income year only and the debt deduction is incurred by the head company during that period.

	This exemption does not apply where all the ADI's that are members of the group are specialist credit card institutions.
	Legislative reference: sections 820-585 and 820-597.

Sections within 05 Applying the thin capitalisation rules to consolidated groups or MEC groups

• Non-ADI grouping provisions
• Grouping branches of foreign banks and financial entities
• How is a group that contains an ADI classified?
• Exemption for certain foreign controlled consolidated groups
• Treatment if classified as an outward investing ADI
• Treatment if classified as an inward investing ADI
• Modifications for rules applying to both outward and inward investing ADIs