• Step 6: Calculate the debt deductions disallowed

    The entity's maximum allowable debt is the greater of the:

    • safe harbour debt amount from steps 2 and 3
    • arm's length debt amount from step 4
    • worldwide gearing debt amount from step 5.

    You do not necessarily have to calculate all amounts. If you do not want to calculate an arm's length debt amount or worldwide gearing debt amount, you can use the safe harbour debt amount as your maximum allowable debt.

    If the entity's adjusted average debt is more than its maximum allowable debt, a proportion of its debt deductions cannot be deducted. Table 36: Non-ADI financial inward investment vehicle's step 6 and Worksheet 28: Non-ADI financial inward investment vehicle's step 6 work out the proportion disallowed.

    See also:

    Table 36: Non-ADI financial inward investment vehicle's step 6

    Steps

    Comments

    Step 6.1: Calculate the amount by which the entity's adjusted average debt exceeds its maximum allowable debt; that is, the excess debt

    Insert this amount at EE on Worksheet 28: Non-ADI financial inward investment vehicle's step 6

    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 6.2: Calculate the entity's average debt

    Insert this amount at FF on Worksheet 28: Non-ADI financial inward investment vehicle's step 6

    The average debt is the average of the following for the income year:

    • the debt capital that gives rise to debt deductions in that year or any other income year; this is the amount calculated at A in Worksheet 22: Non-ADI financial inward investment vehicle's step 1, see step 1.1
    • the entity's cost-free debt capital that is included in its adjusted average debt; this is the amount calculated at D in Worksheet 22: Non-ADI financial inward investment vehicle's step 1 – see step 1.4
     

    Step 6.3: Divide the amount at EE by the amount at FF

    Insert the result at GG on Worksheet 28: Non-ADI financial inward investment vehicle's step 6

    This step works out what proportion to apply to the entity's debt deductions to calculate the amount disallowed

    Step 6.4: Calculate the amount of the debt deductions for the income year

    Insert this amount at HH on Worksheet 28: Non-ADI financial inward investment vehicle's step 6

    The calculation is applied to all the entity's debt deductions for the year

    Step 6.5: Multiply the amount(s) at GG by the amount at HH. This is the total debt deductions disallowed

    This calculates the amount of debt deduction disallowed. Debt deductions that would be allowed, but for thin capitalisation are each reduced proportionately

    Worksheet 28: Non-ADI financial inward investment vehicle's step 6

    Steps

    $

    Step 6.1: Excess debt; that is, adjusted average debt less maximum allowable debt

    (EE) ____________

    Step 6.2: Average debt

    (FF) ____________

    Step 6.3: EE / FF

    (GG) ___________

    Step 6.4: Debt deductions for the income year

    (HH) ___________

    Step 6.5: Total debt deductions disallowed
    (GGHH)

    =_____________

    This is the amount of debt deductions the non-ADI financial inward investment vehicle is not allowed to deduct under the thin capitalisation rules.

    See also:

    • Worked example of calculations for a non-ADI financial inward investment vehicle.
    Last modified: 09 Mar 2016QC 48280