• Classifying a group that contains an ADI

    The following tables set out what rules will apply to a consolidated group or MEC group that includes an ADI or single company that treats an Australian branch of an establishment entity as part of itself.

    Table 5: Classification if no choice is made to include an Australian branch of an establishment entity

    Group composition

    Classification

    At least one member of the group would be an outward investing ADI – ignoring the application of the consolidation provisions; that is, classify the member as if it were a separate entity

    Outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply.

    Refer to paragraph 820-583(7)(a) for more information.

    At least one member of the group is a non-ADI outward investing entity and at least one other member is an ADI

    Outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply

    Refer to paragraph 820-583(7)(b) for more information

    The head company of a MEC group is not an outward investing ADI and the group includes at least one foreign controlled Australian ADI and another entity that is an eligible tier-1 company of the top company for the group:

    • is not an ADI, and
    • does not have a wholly owned subsidiary that is an ADI
     

    Treated as if an outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply

    Refer to section 820-587 for more information

    The head company has made a choice to apply the ADI rules under Subdivision 820-EA of the ITAA 1997 and the head company would otherwise be classified as an outward investor – financial

    Outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply

    Refer to section 820-430(1) for more information

    The head company has made a choice to apply the ADI rules under Subdivision 820-EA of the ITAA 1997 and the head company would otherwise be classified as an inward investment vehicle – financial.

    Outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply

    Refer to section 820-430(1) for more information.

    Table 6: Classification if a choice has been made to include an Australian branch of an establishment entity

    Group composition

    Classification

    The head company or single company is an outward investing entity (ADI) and elects to group with a branch of an establishment entity that is a foreign bank.

    Outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply.

    Refer to paragraph 820-609(1)(b) for more information.

    The head company or single company would otherwise be an outward investing entity (non ADI) and an outward investor (financial or general) and elects to group with a branch of an establishment entity that is a foreign bank.

    Outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply

    Refer to paragraph 820-609(1)(b) of the ITAA 1997 for more information

    The head company has chosen to treat an Australian branch of an establishment entity as part of itself under section 820-597 of the ITAA 1997 and, had that choice not been made, would be exempt from the thin capitalisation rules under section 820-585.

    Outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply.

    Refer to:

     

    The head company has chosen to treat an Australian branch of an establishment entity as part of itself under section 820-597 of the ITAA 1997 and, had that choice not been made, would have been treated as an outward investing ADI under section 820-587.

    Outward investing ADI and the rules in Subdivision 820-D of the ITAA 1997 apply.

    Refer to:

     

    The head company or single company would, had the choice to include an Australian branch of an establishment entity not been made, be classified as an inward investment vehicle – general or financial.

    Inward investing ADI and the rules in Subdivision 820-E of the ITAA 1997 apply.

    Refer to:

     

    Effect of making a choice

    The thin capitalisation rules will apply even if the thin capitalisation rules would otherwise not apply to the head company or single company had the choice to include the Australian branch not been made. That is, if the group would otherwise have been exempt from thin capitalisation because of section 820-585 of the ITAA 1997, it will be subject to thin capitalisation once the choice is made.

    Last modified: 09 Mar 2016QC 48175