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# Step 3: Calculate the worldwide capital amount

How to calculate the worldwide capital amount if you're an outward investing entity (ADI).

Last updated 23 July 2024

A foreign-controlled authorised deposit-taking institution (ADI) cannot apply the worldwide capital test. If the ADI is foreign-controlled, go directly to step 4.

The worldwide capital test is available to an outward investing entity (ADI) that is not also foreign controlled. This test allows an ADI with foreign investments to fund its Australian investments with a minimum capital ratio equal to 100% of the Tier 1 capital ratio of the worldwide group. The worldwide group consists of the Australian ADI and the controlled foreign entities for which the ADI is an Australian controller.

Table 32: Outward investing entity (ADI)'s step 3 and Worksheet 26: Outward investing entity (ADI)'s step 3 explain how to work out the worldwide capital amount.

You will need a copy of the prudential standards to work out the worldwide capital amount.

Table 32: Outward investing entity (ADI)'s step 3

Steps

Step 3.1: Calculate the average value of the eligible tier 1 capital (within the meaning of the prudential standards) for the worldwide group of which the ADI is a member.

Insert this amount at F on Worksheet 26: outward investing entity (ADI)'s step 3.

This is the average value of eligible tier 1 capital (within the meaning of the prudential standards) of the worldwide group of which the ADI is a member. Tier 1 capital is also calculated in accordance with the prudential standards.

Step 3.2: Calculate the average value of the worldwide group's risk-weighted assets.

Insert this amount at G on Worksheet 26: Outward investing entity (ADI)'s step 3.

This is the average value of the worldwide group's risk-weighted assets. Risk-weighted assets are calculated in accordance with the prudential standards.

Step 3.3: Divide the amount at F by the amount at G.

Insert the result at H on Worksheet 26: Outward investing entity (ADI)'s step 3.

Dividing the worldwide group's tier 1 capital by the worldwide group's risk-weighted assets establishes the capital ratio of the worldwide group.

Step 3.4: Calculate the average value of the ADI's risk weighted assets that are not:

• attributable to the ADI's overseas permanent establishments
• assets that represent equity invested in controlled foreign entities; that is, amounts shown at B in Worksheet 26: outward investing entity (ADI)'s step 1
• assets in respect of which prudential capital deductions must be made, other than assets attributable to the ADI's overseas permanent establishments.

Insert the result at I on Worksheet 26: Outward investing entity (ADI)'s step 3.

This is the average value of the ADI's risk-weighted assets attributable to its Australian operations.

Step 3.5: Insert the result of step 3.3 (H) at J on Worksheet 26: Outward investing entity (ADI)'s step 3.

This is the same amount calculated in step 3.3.

Step 3.6: Multiply the amount at I by the amount at J.

Insert the result at K on Worksheet 26: Outward investing entity (ADI)'s step 3.

This applies the worldwide capital ratio to the ADI's Australian risk-weighted assets.

Step 3.7: Calculate the average value of all the tier 1 prudential capital deductions for that year, other than the value of tier 1 prudential capital deductions attributable to any of the ADI's overseas permanent establishments or controlled foreign entities for which the ADI is an Australian controller.

Insert the result at E on Worksheet 44: outward investing entity (ADI)'s step 3.

This is the average value of the ADI's tier 1 prudential capital deductions.

Tier 1 prudential capital deductions are amounts that must be deducted under the prudential standards when calculating eligible tier 1 capital. Prudential capital deductions are made in respect of assets like goodwill and intangibles.

Step 3.8: Calculate the ADI's worldwide capital amount by adding the amounts at and E.

This is the ADI's worldwide capital amount.

Worksheet 26: Outward investing entity (ADI)'s step 3

Steps

\$

Step 3.1: Worldwide group's average tier 1 capital

(F) _____________

Step 3.2: Worldwide group's average risk-weighted assets

(G) _____________

Step 3.3: F ÷ G

(H) _____________

Step 3.4: ADI's average risk-weighted assets attributable to its Australian operations

(I) _____________

Step 3.5: Transfer result from

(J) _____________

Step 3.6: I × J

(K) _____________

Step 3.7: ADI's average tier 1 prudential capital deductions

(E) _____________

Step 3.8: Worldwide capital amount (E)

= _____________

## Worksheet 26: outward investing entity (ADI)'s step 3

If the ADI's adjusted average equity capital is equal to or more than the worldwide capital amount, the ADI is not disallowed any debt deductions under the thin capitalisation rules. You do not have to complete any more calculations.

If the ADI's adjusted average equity capital is less than both the worldwide capital amount and the safe harbour capital amount, you can choose to calculate an arm's length capital amount for the ADI – see step 4. If you do want to calculate an arm's length capital amount, you can use your worldwide capital amount as the minimum capital amount and debt deductions will be disallowed on this basis – see step 5.