The entity's maximum allowable debt is the greatest of the:
- safe harbour debt amount from step 2
- worldwide gearing debt amount from step 3
- arm's length debt amount from step 4.
You do not have to calculate all three amounts. For example, you can use the safe harbour debt amount as the maximum allowable debt if you do not want to calculate a worldwide gearing debt amount or an arm's length debt amount. |
If the entity's adjusted average debt is more than its maximum allowable debt, a proportion of its debt deductions cannot be deducted. Table 15: Non-ADI general outward investor's step 5 and Worksheet 7: Non-ADI general outward investor's step 5 work out the proportion disallowed.
See also:
- section 820-115 of the ITAA 1997.
Table 15: Non-ADI general outward investor's step 5
Steps |
Comments |
---|---|
Step 5.1: Calculate the amount by which the entity's adjusted average debt exceeds its maximum allowable debt; that is, its excess debt Insert the result at LL on Worksheet 7: Non-ADI general outward investor's step 5 |
The proportion of debt deductions disallowed depends on the amount by which the entity's adjusted average debt (from step 1) exceeds its maximum allowable debt |
Step 5.2: Calculate the entity's average debt Insert this amount at MM on Worksheet 7: Non-ADI general outward investor's step 5 |
The average debt is the average value, for the income year, of:
|
Step 5.3: Divide the amount at LL by the amount at MM Insert the result at NN on Worksheet 7: Non-ADI general outward investor's step 5 |
This step works out what proportion to apply to the entity's debt deductions to calculate the amount disallowed |
Step 5.4: Calculate the amount of debt deductions for the income year Insert this amount at PP on Worksheet 7: Non-ADI general outward investor's step 5 |
The calculation is applied to all the entity's debt deductions for the year |
Step 5.5: Multiply the amount at NN by the amount at PP. This is the amount of debt deductions disallowed |
This calculates the amount of that type of debt deduction disallowed. The debt deductions that would be allowed, but for thin capitalisation, are each reduced proportionately |
Worksheet 7: Non-ADI general outward investor's step 5
Steps |
$ |
---|---|
Step 5.1: Excess debt; that is, the adjusted average debt − maximum allowable debt |
(LL) __________ |
Step 5.2: Average debt |
(MM) __________ |
Step 5.3: LL MM |
(NN) __________ |
Step 5.4: Debt deductions for the year. |
(PP) __________ |
Step 5.5: Total debt deductions = disallowed (NN PP) |
__________ |
This is the amount of debt deductions your non-ADI general outward investor is not allowed to deduct under the thin capitalisation rules.
See also:
- Worked example of calculations for a non-ADI general outward investor.