Outward investing financial entities (non-ADI)
An entity is an outward investing financial entity (non-ADI) if it is any of the following:
- an Australian controller of an Australian controlled foreign entity
- an Australian entity that carries on business through an overseas permanent establishment
- an Australian entity that is an associate entity of either of the above 2 entities.
For more information, see:
- subsection 820-85(2) of the ITAA 1997
- subsection 820-300(2) of the ITAA 1997.
Inward investing financial entities (non-ADI)
An entity is an inward investor (financial) if it is an:
- inward investment vehicle (financial) – an Australian entity that is controlled by a foreign entity or foreign entities
- inward investor (financial) – a foreign entity. Although all foreign entities are inward investors, the thin capitalisation rules only affect foreign entities
- with an Australian permanent establishment or other Australian income producing assets
- that are claiming debt deductions.
For more information, see:
- subsection 820-185(2) of the ITAA 1997
- subsection 820-395(2) of the ITAA 1997.
General class investor entities, financial entities and ADI entities
General class investor
A general class investor entity is an entity that is neither a financial entity nor an ADI entity but is otherwise subject to the thin capitalisation provisions. For more information, see General class investors.
Financial entity
A financial entity is an entity, other than an ADI, that is any of the following:
- a registered corporation under the Financial Sector (Collection of Data) Act 2001 that carries on a business predominantly for the purpose of providing finance to an entity (or entities) that are not associates and derives all or substantially all of its profits from that business
- a securitisation vehicle
- an entity that is either
- a financial services licensee, within the meaning of the Corporations Act 2001, whose licence covers dealings in at least one of the financial products mentioned in paragraphs 764A(1)(a), (b) and (j) of that Act or dealings in derivatives
- both of the following
- exempt under paragraph 911A(2)(h) or (l) of the Corporations Act 2001 from the requirement to hold an Australian financial services licence for dealings in at least one of those financial products or dealings in such derivatives
- carrying on a business of dealings in securities or such derivatives, but not predominantly for the purposes of dealing in securities or such derivatives with, or on behalf of, the entity's associates.
For more information, see subsection 995-1(1) of the ITAA 1997.
ADI entity
Certain financial entities can elect to be treated as an ADI under the thin capitalisation rules. The conditions for making this election are explained in Electing to use the ADI rules.
An ADI entity is a body corporate that is an authorised deposit taking institution for the purposes of the Banking Act 1959.
An entity is a securitisation vehicle if all the following apply:
- it is established for the purposes of acquiring, funding and holding securitised assets
- it has acquired the securitised assets from another entity
- the acquisition of the securitised assets is wholly funded by the issuing of debt interests by the entity
- it does not receive any guarantee, security or other form of credit support from any of its associate entities or from the entity it acquired the securitised assets from, or that entity's associate entities
- it has issued debt interests (that is, borrowed money) for the sole purpose of acquiring the securitised assets
- it has not been issued with any debt interests by any of its associate entities, by the entity it acquired the securitised assets from or by that entity's associate entities
- any arrangements between the entity and its associate entities, the entity it acquired the securitised assets from, and that entity's associate entities are reasonably expected to be on arm's length terms.
For more information, see subsection 820-942(2) of the ITAA 1997.
Entities that are both outward and inward investing entities
If an entity is both an outward investing entity and an inward investing entity, the rules for outward investing entities apply. For example, if an Australian resident entity is foreign controlled and carries on business through an overseas permanent establishment, the rules for outward investing entities apply subject to 2 qualifications:
- The entity is not able to apply the assets threshold test in section 820-37 of the ITAA 1997.
- The entity may choose to apply a worldwide gearing debt test provided that certain requirements are met, including a requirement that the entity’s Australian assets represent no more than 50% of the entity’s statement worldwide assets.
The following tables summarise the rules explained in this section. They also tell you which section explains how to apply the thin capitalisation rules to the type of entity you are dealing with.
|
Entity type |
Financial entity |
ADI entity |
|---|---|---|
|
Outward investing entity |
||
|
Inward investment vehicle |
Not applicable |
|
|
Inward investing entity |
||
|
Outward investing entity and inward investment vehicle |
For general class investors assume the entity is a financial entity and then classify as outward or inward financial entity as above.
|
Entity type |
Elected classification and rules |
|---|---|
|
Outward investing financial entity (non-ADI) |
Outward investing entity (ADI). The rules in Subdivision 820-D of the ITAA 1997 apply. Refer to outward investing entity (ADI). |
|
Inward investment vehicle (financial) |
Outward investing entity (ADI). The rules in Subdivision 820-D of the ITAA 1997 apply Refer to outward investing entity (ADI). |
|
Inward investor (financial) |
Inward investing entity(ADI). The rules in Subdivision 820-E of the ITAA 1997 apply Refer to inward investing entity (ADI). |
|
Outward investing financial entity (non-ADI), and inward investment vehicle ( financial) |
Outward investing entity (ADI). The rules in Subdivision 820-D of the ITAA 1997 apply Refer to outward investing entity (ADI). |