The steps a non-ADI general inward investor takes to calculate if they have met the thin capitalisation rules are:
- Step 1: Calculate the adjusted average debt
- Step 2: Calculate the safe harbour debt amount
- Step 3: Calculate the arm's length debt amount
- Step 4: Calculate the worldwide gearing debt amount
- Step 5: Calculate the debt deductions disallowed.
Non-ADI general inward investors and non-ADI financial inward investor are subject to certain record keeping requirements if both of the following apply:
- They are carrying on business at or through a permanent establishment.
- Total revenues of at least $2 million are attributable to that permanent establishment.
Under these requirements, financial statements, including all the necessary notes, must be prepared for its Australian permanent establishment using one of the following:
- the Australian accounting standards
- the accounting standards of the European Union, Japan, USA, UK, Canada, New Zealand
- the international accounting standards.
- section 820-960 of the ITAA 1997.
This flowchart summarises the steps a non-ADI general inward investor follows to work out whether any of its debt deductions are disallowed and, if so, the amount of the disallowed deductions. Use this flowchart to help you work through the steps.
Flowchart 6: Non-ADI general inward investor's steps to work out if any of the debt deductions are disallowed
The 5 steps a non-ADI general inward investor takes to calculate if they have met the thin capitalisation rules.