• Step 1: Calculate the adjusted average debt

    Broadly, the adjusted average debt of a non-ADI general inward investment vehicle is the debt capital used in its Australian operations that gives rise to debt deductions. It does not matter whether the debt deductions arise in the year the debt interest was issued or in any other income year.

    Debt that does not give rise to any deductible expenditure at any time is generally not included in adjusted average debt. However, the debt is included if the debt interest is cost-free debt capital – see step 1.3.

    Table 24: Non-ADI general inward investment vehicle's step 1 and Worksheet 16: Non-ADI general inward investment vehicle's step 1 explain how a non-ADI general inward investment vehicle calculates its adjusted average debt.

    See also:

    Table 24: Non-ADI general inward investment vehicle's step 1

    Steps

    Comments

    Step 1.1: Calculate the average value, for the income year, of all the entity's debt capital that gives rise to its debt deductions for that year or any other income year.

    Insert this amount at A on Worksheet 16: Non-ADI general inward investment vehicle's step 1

    The entity's debt capital is the average value of all the debt interests issued by the entity that give rise to debt deductions in any income year. This includes debt interests that do not initially give rise to debt deductions but will do so in the future.

    Step 1.2: Calculate the average value of all the entity's associate entity debt for that year.

    Insert this amount at B on Worksheet 16: Non-ADI general inward investment vehicle's step 1

    The average debt capital is then reduced by associate entity debt

    Step 1.3: Calculate the average value of any of the entity's cost-free debt capital for that year

    Insert this amount at C on Worksheet 16: Non-ADI general inward investment vehicle's step 1

    Cost-free debt capital is included in adjusted average debt for integrity reasons

    Step 1.4: Calculate the adjusted average debt. Adjusted average debt is the result of AB + C

    Adjusted average debt represents total debt A less associate entity debt B, increased by cost-free debt capital C

    Worksheet 16: Non-ADI general inward investment vehicle's step 1

    Steps

    $

    Step 1.1: Average debt capital

    (A) _____________

    Step 1.2: Average associate entity debt

    (B) _____________

    Step 1.3: Average cost-free debt capital

    (C) _____________

    Step 1.4: Adjusted average debt (AB + C)

    = _____________

    If the entity's adjusted average debt is zero or a negative amount, the entity has not exceeded its maximum allowable debt and it is not disallowed any debt deductions under the thin capitalisation rules. You do not have to complete any more calculations.

    If the entity's adjusted average debt is a positive amount, you need to calculate the entity's maximum allowable debt amount, which is the greater of the:

    • safe harbour debt amount – see step 2
    • arm's length debt amount – see step 3
    • worldwide gearing debt amount – see step 4.

    See also:

    • Worked example of calculations for a non-ADI general inward investment vehicle.
    Last modified: 09 Mar 2016QC 48272