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  • Step 5: Calculate the debt deductions disallowed

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

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

    You do not necessarily have to calculate all amounts. You can use the safe harbour debt amount as the maximum allowable debt if you do not want to calculate an arm's length debt amount or worldwide gearing 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 29: Non-ADI general inward investment vehicle's step 5 and Worksheet 21: Non-ADI general inward investment vehicle's step 5 work out the proportion disallowed.

    See also:

    Table 29: Non-ADI general inward investment vehicle's step 5

    Steps

    Comments

    Step 5.1: Calculate the amount by which the entity's adjusted average debt exceeds its maximum allowable debt (the excess debt)

    Insert the result at X on Worksheet 21: Non-ADI general inward investment vehicle'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 Y on Worksheet 21: Non-ADI general inward investment vehicle's step 5

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

    • the debt capital that gives rise to debt deductions in that year or any other income year – this is the amount calculated at A on Worksheet 16: Non-ADI general 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 C on Worksheet 16: Non-ADI general inward investment vehicle's step 1 – see step 1.3
     

    Step 5.3: Divide the amount at X by the amount at Y

    Insert the result at Z on Worksheet 21: Non-ADI general inward investment vehicle'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 AA on Worksheet 21: Non-ADI general inward investment vehicle's step 5

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

    Step 5.5: Multiply the amount(s) at Z by the amount at AA. This is the amount of debt deductions disallowed

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

    Worksheet 21: Non-ADI general inward investment vehicle's step 5

    Steps

    $

    Step 5.1: Excess debt – adjusted average debt − maximum allowable debt

    (X) _____________

    Step 5.2: Average debt

    (Y) _____________

    Step 5.3:X   Y

    (Z) _____________

    Step 5.4: Debt deductions for the income year

    (AA) _____________

    Step 5.5: Total debt deductions disallowed (Z   AA)

    = _____________

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

    See also:

    • Worked example of calculations for a non-ADI general inward investment vehicle.
    Last modified: 09 Mar 2016QC 48278