Maximum allowable debt
This is the maximum amount of debt a non-ADI entity can have before debt deductions are disallowed under the thin capitalisation rules. The maximum allowable debt is the greatest of:
- the safe harbour debt amount
- the arm's length debt amount
- the worldwide gearing debt amount, which is only available to Australian entities that are not foreign controlled.
- section 820-90 of the ITAA 1997 for outward investors
- section 820-190 for inward investing entities.
A measurement day is the day on which an entity measures the value of its debt, non-debt liabilities, assets and equity capital. The number of measurement days depends on which option the entity uses to calculate an average value.
MEC group – multiple entry consolidated group
A MEC group is treated as a consolidated group for income tax purposes. A MEC group consists of two or more eligible Australian resident companies (and their wholly-owned subsidiaries, if any) to whom all the following apply:
- They are wholly owned by a common foreign parent company.
- They do not have a common Australian parent.
- They choose to form a multiple entry consolidated (MEC) group.
- section 719-5 of the ITAA 1997.
Minimum capital amount
This is the minimum amount of equity capital an ADI must hold before debt deductions are disallowed under the thin capitalisation rules. The minimum capital amount is the least of:
- the safe harbour capital amount
- the arm's length capital amount
- the worldwide capital amount, which is only available to Australian ADI entities that are not foreign controlled.
- section 820-305 of the ITAA 1997 for ADI outward investing entities
- section 820-400 for ADI inward investing entities