• Step 5: Calculate the worldwide gearing debt amount

    For an entity that is an inward investor (financial), the worldwide gearing debt amount is calculated as follows.

    See also:

    Table 48: Non-ADI financial inward investor's step 5

    Steps

    Comments

    Step 5.1: Calculate the entity's statement worldwide debt for the income year

    This amount is calculated using specified audited consolidated financial statements

    Insert this amount at Z on Worksheet 40: Non-ADI financial inward investor's step 5

    Statement worldwide debt is the amount of liabilities for the period less the following amounts:

    • provisions
    • liabilities in relation to distributions to equity participants
    • trade payables
    • deferred tax liabilities
    • liabilities relating to employee benefits
    • current tax liabilities
    • deferred revenue
    • liabilities relating to insurance
    • any other amount specified by legislative instrument

    Refer to subsection 820-933(1) of the ITAA 1997

    Step 5.2: Calculate the entity's statement worldwide equity for the income year

    This amount is calculated using specified audited consolidated financial statements

    Insert this amount at AA on Worksheet 40: Non-ADI financial inward investor's step 5.

    Statement worldwide equity is the amount of net assets for the period

    Refer to Section 820-933(2) of the ITAA 1997

    Step 5.3: Divide the amount at Z by the amount at AA. This is the worldwide gearing ratio

    Insert the result at BB on Worksheet 40: Non-ADI financial inward investor's step 5

    Dividing the worldwide debt by the worldwide equity establishes the worldwide gearing ratio

    Step 5.4: Add 1 (one) to the amount at BB (Step 5.3)

    Insert the result at CC on Worksheet 40: Non-ADI financial inward investor's step 5

    Steps 5.4 and 5.5 convert the ratio to a fraction, which is later applied to the entity's net Australian assets

    Step 5.5: Divide the amount at BB by the amount at CC.

    Insert the result at DD on Worksheet 40: Non-ADI financial inward investor's step 5

     

    Step 5.6: Multiply the amount at DD by H

    Insert the result at EE on Worksheet 40: Non-ADI financial inward investor's step 5

    This applies the ratio, expressed as a fraction, to net Australian assets H represents the net Australian assets funded by debt and equity, as calculated at H in Worksheet 36: Non-ADI financial inward investor's step 2

    Step 5.7: Add the average value of the entity’s zero capital amount ZC from Worksheet 36: Non-ADI financial inward investor's step 2 to the amount at EE

    Insert the amount at FF on Worksheet 40: Non-ADI financial inward investor's step 5

     

    Step 5.8: If the entity does not have any associate entities that are non-ADI outward investors or inward investors, insert 0 (zero) at GG on Worksheet 40: Non-ADI financial inward investor's step 5

    Otherwise, calculate the average value of the entity's associate entity excess amount (refer to the method statement in 820-920 of the ITAA 1997), insert the amount at GG on Worksheet 40: Non-ADI financial inward investor's step 5

    This increases the worldwide gearing debt amount by the average associate entity excess amount

    Note: If the entity does not have any associate entities that are non-ADI outward investors or non-ADI inward investors, the average associate entity excess amount is zero

    Step 5.9: Calculate the entity's worldwide gearing debt amount by adding the amounts at FF and GG

    The worldwide gearing debt amount represents the fraction of net Australian assets, increased by any associate entity excess amount

    Worksheet 40: Non-ADI financial inward investor's step 5

    Steps

    $

    Step 5.1: Worldwide debt

    (Z) __________

    Step 5.2: Worldwide equity

    (AA) __________

    Step 5.3: Divide Z by  AA

    (BB) __________

    Step 5.4: BB + 1

    (CC) __________

    Step 5.5: Divide BB by  CC

    (DD) __________

    Step 5.6: Multiply DD  by amount at H on Worksheet 36: Non-ADI financial inward investor's step 2

    (EE) __________

    Step 5.7: Add EE by the amount at ZC on Worksheet 36: Non-ADI financial inward investor's step 2

    (FF)

    Step 5.8: Average associate entity excess amount

    (GG) __________

    Step 5.9: Worldwide gearing debt amount (FF + GG)

    =      ___________

    Calculating GG: The average associate entity excess amount for the worldwide gearing debt amount

    Refer to section 820-920 of the ITAA 1997 for the method statement on how to calculate this amount.

    If the entity has no associate entities that are non-ADI outward investors or non-ADI inward investors, do not complete this step and show zero at GG on Worksheet 40: Non-ADI financial inward investor's step 5.

    If the entity’s adjusted average debt is equal to or less than this amount, the entity is not disallowed any debt deductions under the thin capitalisation rules. However, if the entity’s adjusted average debt is more than the worldwide gearing amount, you can choose to use the arm’s length debt amount under step 3 or safe harbour debt amount under step 2.

    If you do not wish to calculate the arm’s length debt amount, you can use your worldwide gearing debt amount as your maximum allowable debt amount and debt deductions will be disallowed on this basis – see step 6.

    Last modified: 09 Mar 2016QC 48256