A non-ADI entity is an entity that is not an authorised deposit taking institution for the purposes of the Banking Act 1959.
Non-ADI outward investing entity
A non-ADI outward investing entity (or non-ADI outward investor) is an Australian entity that is not an ADI and one of the following applies:
- It is an Australian controller of an Australian controlled foreign entity
- It carries on business overseas through a permanent establishment
- It is an associate entity of either of the above entities.
The outward investor can be either a general entity or a financial entity. A financial entity may be able to elect to be treated as an ADI for thin capitalisation purposes under Subdivision 820-EA. The conditions for making this election are explained in Electing to use the ADI rules.
The thin capitalisation rules do not apply to a non-ADI outward investor if any of the following apply:
- the debt deductions of the outward investor and its associate entities are $250,000 or less in the income year
- if the outward investor is not also foreign controlled and it meets the asset threshold test
- the entity is a special purpose entity set up to manage certain risks and is exempt from the thin capitalisation provisions under section 820-39.
If the thin capitalisation rules do not apply to your non-ADI outward investor entity, you do not need to read about thin capitalisation.
This is a liability that is not a debt interest and meets certain other criteria – see subsection995-1(1) of the ITAA 1997. The accounting standards are used to determine whether something is a liability.
Non-debt liabilities are relevant to calculating the safe harbour debt amount for non-ADI entities. An entity's non-debt liabilities are liabilities at that time other than:
- the entity's debt capital
- equity interests held in the entity
- a provision for a distribution of profit – this is relevant only if the entity is a company, corporate limited partnership, corporate unit trust or a public trading trust
- a provision for a distribution to the entity's members – this is relevant only if the entity is not a company, corporate limited partnership, corporate unit trust or a public trading trust
- liabilities under a securities loan arrangement if, at the relevant time, the entity has received amounts for the sale of securities (other than any fees associated with that sale) but has not yet repurchased the securities
- liabilities that meet the conditions for being included in the entity's borrowed securities amount.
Non-debt liabilities that are wholly or principally of a private or domestic nature are also excluded – see section 820-32. Whether something is a liability is determined by reference to the accounting standards.
- subsection 995-1(1) of the ITAA 1997
- subsection 820-680(1A) of the ITAA 1997
- Taxation Ruling TR2002/20.