Application to part-year periods

This section explains how the thin capitalisation rules apply if the entity was subject to the rules for part of an income year or was subject to different thin capitalisation rules throughout an income year.

If your entity is subject to the thin capitalisation rules for only part of the income year, you must work out its adjusted average debt and maximum allowable debt for only that part of the year. The entity will be disallowed debt deductions under the thin capitalisation rules if its adjusted average debt for that period exceeds its maximum allowable debt for that period. The average values used in the calculations are the average values over the relevant period. Likewise, the debt deductions affected are only those incurred during that same period.

If the entity is subject to the rules for non-continuous periods, the calculations apply to each period separately. For example, the entity may be subject to the rules for the first three months of the year but not for the next three months, and then becomes subject to the rules again for the last six months of the year. Calculate any debt deductions disallowed for each period and then add them together to work out the total debt deductions disallowed for the income year.

Alternatively, an entity may be subject to the thin capitalisation rules for a full income year but change status part-way through the year.

Example 10: Non-ADI inward investment vehicle acquires a controlled foreign entity

An entity is a non-ADI inward investment vehicle for the first six months of the year. It then acquires a controlled foreign entity. From that point forward, the entity is treated as a non-ADI outward investor. For the first six months of the year, the rules applying to non-ADI inward investment vehicles apply and for the next six months the non-ADI outward investor rules apply.

End of example

When applying the steps and worksheets to a part-year period, all references to an income year become references to a period.

See also:

Last modified: 09 Mar 2016QC 48229