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  • Section D: Thin capitalisation

    Attention

    Warning:

    This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

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    Question 30

    This question provides us with information as to whether the thin capitalisation rules affect you.

    You may be excluded from the requirement to apply the thin capitalisation provisions in subdivisions 820-B, 820-C, 820-D or 820-E of the ITAA 1997if one of the following applies:

    • you and all of your relevant associate entities have total debt deductions of $2 million or less for the income year under section 820-35 of the ITAA 1997.
    • you satisfy section 820-37 of the ITAA 1997.

    If one of the above exclusions apply, answer No at item 30.

    If the thin capitalisation rules in subdivisions 820-B, 820-C, 820-D or 820-E of the ITAA 1997 applied to you, answer Yes at item 30.

    Find out more

    Question 31

    This question is relevant if you are an Australian resident company that has elected under subdivision 820-FB of the ITAA 1997 to treat their qualifying branch operations as part of a consolidated group, multiple entry consolidated (MEC) group or single company for thin capitalisation purposes.

    If you carry on qualifying Australian branch operations that your related Australian consolidated group, MEC group or single company has elected under subdivision 820-FB of the ITAA 1997 to treat as part of itself for thin capitalisation purposes, you will not be required to complete the remaining thin capitalisation questions. This is because the questions must be completed in the return of the head company or the single company on the basis of including your branch operations.

    If an Australian resident company has elected under subdivision 820-FB of the ITAA 1997 to treat your qualifying Australian branch operations as part of its consolidated group, MEC group or single company for thin capitalisation purposes, answer Yes at item 31 and write the ABN of the electing Australian company at item 31 and then go to question 40.

    If you do carry on qualifying Australian branch operations that are not treated as part of a consolidated group, MEC group or single company by reason of the operation of subdivision 820-FB, you must complete the following thin capitalisation questions for the branch operations.

    Question 32

    This question ascertains your thin capitalisation entity type at the end of the year.

    The thin capitalisation rules apply differently depending on an entity's type. To work out how the thin capitalisation rules apply to a particular entity we need to know which category the entity belongs to.

    If your type of thin capitalisation entity changed during the year, you only need to complete section D for the type of thin capitalisation entity you were at the end of the income year or relevant period.

    To complete this question you need to ascertain your entity code from the table below.

    At A write the code which represents the type of thin capitalisation entity you are at the end of the income year or relevant period. If you do not know what type of entity you are, refer to the relevant provisions in Division 820 of the ITAA 1997.

    Non-authorised deposit-taking institution (Non-ADI)

    Code

    Type

    1

    Outward investor (general) under subsections 820-85(2) and 820-583(2) and is not also an inward investment vehicle (general) under subsections 820-185(2) and 820-583(5)

    2

    Outward investor (financial) under subsections 820-85(2) and 820-583(3) and is not also an inward investment vehicle (financial) under subsections 820-185(2), 820-583(6) and 820-609(6)

    3

    Inward investment vehicle (general) under subsections 820-185(2) and 820-583(5) and is not also an outward investor (general) under subsections 820-85(2) and 820-583(2)

    4

    Inward investment vehicle (financial) under subsections 820-185(2), 820-583(6) and 820-609(6) and is not also an outward investor (financial) under subsections 820-85(2) and 820-583(3)

    5

    Inward investor (general) under subsection 820-185(2)

    6

    Inward investor (financial) under subsection 820-185(2)

    9

    Inward investment vehicle (general) under subsections 820-185(2) and 820-583(5) and is also an outward investor (general) under subsections 820-85(2) and 820-583(2)

    10

    Inward investment vehicle (financial) under subsections 820-185(2), 820-583(6) and 820-609(6) and is also an outward investor (financial) under subsections 820-85(2) and 820-583(3)

    ADI

    Code

    Type

    7

    Outward investing entity (ADI) under subsections 820-300(2), 820-583(7), 820-587 and 820-609

    8

    Inward investing entity (ADI) under subsections 820-395(2) and 820-609(4)

    Question 33

    This question ascertains if you have changed your entity status from ‘general' to ‘financial’ during the income year. The thin capitalisation provisions categorise non-ADI entities as either a kind of 'financial entity' (covered by code 246 or 10) or a kind of 'general entity' (covered by code 13or 9). See the above table of thin capitalisation entity types.

    If you have changed your entity type for thin capitalisation from ‘general’ to ‘financial’ during the income year, answer Yes at A item 33.

    Find out more

    • Information about the different types of thin capitalisation entities, see the provisions in the table of thin capitalisation entity types.

    Question 34

    This question seeks to ascertain your method for calculating average values.

    At item 34 write the code from the table below that represents the type of averaging method you used for calculating 'average values'.

    Codes for types of averaging method

    Code

    Averaging method used

    1

    Opening/closing balances method under section 820-635

    2

    Three measurement days method under section 820-640

    3

    Frequent measurement (quarterly) method under subsection 820-645(2)

    4

    Frequent measurement (regular intervals) method under subsection 820-645(4)

    Find out more

    • Information about these methods or 'average values', see Division 820 of the ITAA 1997.

    Question 35

    This question requires information for all thin capitalisation entity types.

    The dollar amounts or values asked for in this question are all based on your tax records.

    You must complete all labels. However, if you have written code or (ADI) at item 32 you do not need to complete item 35.

    At item 35 write the total amount of your debt deductions for the income year that are allowable before applying the thin capitalisation provisions in Division 820 of the ITAA 1997.

    At item 35 write the amount of your debt deductions for any debt interest held or ultimately funded (via a back-to-back arrangement) by a non-resident person who is either a controller or majority owner of you, or is controlled or majority owned by the same persons as you (this includes majority ownership through other companies, partnerships or trusts). If none of the debt deductions shown at item 35 were for debt interests held or ultimately funded by such non-resident entities, write '0' (zero) at B.

    At item 35 write the amount of your debt deductions that are disallowed for the income year under the following sections if you have written:

    • code 12or 10 at A item 32, the amount disallowed under sections 820-115 and 820-120
    • code 345 or 6 at A item 32, the amount disallowed under sections 820-220 and 820-225
    • code 7 at item 32, the amount disallowed under sections 820-325 and 820-330
    • code 8 at item 32, the amount disallowed under sections 820-415 and 820-420.

    At D item 35 write the amount of your adjusted average debt for the income year worked out under the following sections if you have written:

    • code 1, 2, 9 or 10 at A item 32, under subsection 820-85(3)
    • code 34or 6 at item 32, under subsection 820-185(3).

    Question 36

    This question requires information if you were an authorised deposit taking institution (ADI).

    If you were an ADI for the income year and have written code or 8 (ADI) at item 32, answer Yes at A item 36 and complete the required fields.

    If you have written code 123456, 9 or 10 (non-ADI) at A item 32 answer No at A.

    If you have written code 7 (outward investing entity ADI) at item 32 write the following amounts:

    • At B, the amount of your adjusted average equity capital worked out under subsection 820-300(3).
    • At C, write your safe harbour capital amount determined under section 820-310. If you have calculated a safe harbour capital amount and relied on the arm’s length method or world wide capital method, write the amount you calculated for the safe harbour capital amount at C.
    • At D, write the amount by which your minimum capital amount determined under section 820-305 exceeds the amount of your adjusted average equity capital written at B.
    • At E, the amount of the average value of risk-weighted assets that you are required to include in step 1 in section 820-310 (after excluding the value of risk-weighted assets attributable to the assets specified in paragraphs (a), (b) and (c) of step 1 in section 820-310).
    • At F, the amount of ADI equity capital attributable to your overseas permanent establishment(s) that you were required, under paragraph 820-300(3)(a), to subtract in determining the amount of adjusted average equity capital you had to write at item 36.
    • At G, the amount of the average value of your 'total risk-weighted assets', used to work out your Tier 1 capital reported to APRA for your ADI group, attributable to your overseas permanent establishment(s) that you were required, under paragraph (a) of step 1 in section 820-310, to subtract in determining the amount of the average value of risk-weighted assets you had to write at item 36.
    • At H, the amount of the average value of all your controlled foreign entity equity, within the meaning of section 820-890, that you were required, under paragraph 820-300(3)(b), to subtract in determining the amount of adjusted average equity capital you had to write at B item 36.
    • At I, the amount of tier 1 prudential capital deductions that you are required to include in step 3 in section 820-310.

    If you have written code 8 (inward investing entity ADI) at A item 32 write the following amounts:

    • At B, the amount of the average equity capital worked out under subsection 820-395(3).
    • At C, your safe harbour capital amount determined under section 820-405. If you have calculated a safe harbour capital amount and relied on the arm’s length method, write the amount you calculated for the safe harbour capital amount at C.
    • At D, write the amount by which your minimum capital amount determined under section 820-400 exceeds the amount of your average equity capital written at B.
    • At J, the amount of the average value of all your risk weighted assets attributable to your Australian permanent establishments (but after excluding those assets which are attributable to offshore banking activities) that you are required to include in step 1 of section 820-405.
    • At K, the amount of the average value of the total amounts you have made available to your Australian permanent establishments, that will never give rise to any debt deductions, that you are entitled to include, under paragraph 820-395(3)(b), in working out the amount of average equity capital you had to write at item 36.

    Question 37

    This question requires information if you were not an authorised deposit taking institution (ADI).

    If you have written code 7 or 8 (ADI) at item 32, answer No at A.

    If you were not an ADI for the income year and have written code 123456, 9 or 10 (non-ADI) at A item 32, answer Yes at A and complete the following.

    At B, write the amount of the average value of your assets required to be included in step 1 of the following sections if you have written:

    • code 1 or 9 at item 32, under section 820-95
    • code 2 or 10 at item 32, under section 820-100
    • code 3 at item 32, under section 820-195
    • code 4 at A item 32, under section 820-200
    • code 5 at item 32, under section 820-205
    • code 6 at A item 32, under section 820-210.

    At C, write the total amount by which your assets have been revalued for thin capitalisation purposes for the income year (this is to be included in the amount you write at B item 37).

    At D, if you have written:

    • code 12, 9 or 10 at A item 32, write your safe harbour debt amount determined under section 820-95 (code 1 or 9) or section 820-100 (code or 10). If you have calculated a safe harbour debt amount and relied on the arm’s length method or world wide gearing method, write the amount you calculated for the safe harbour debt amount at D, otherwise leave this blank.
    • code 345, or 6 at item 32, write your safe harbour debt amount determined under section 820-195 (code 3), section 820-200 (code 4), section 820-205 (code 5), or section 820-210 (code 6). If you have calculated a safe harbour debt amount and relied on the arm’s length method or world wide gearing method write the amount you calculated for the safe harbour debt amount at D, otherwise leave this blank.

    At E, write the amount by which your adjusted average debt written at item 35 exceeds your maximum allowable debt determined under section 820-90 (codes 12, 9 and 10) or section 820-190 (codes 34and 6).

    At F, write the amount of the average value of your non-debt liabilities, as defined in subsection 995-1(1), which you are required to subtract in determining your safe harbour debt amount as follows if you have written:

    • code 1 or 9 at item 32, subtracted in step 6 of section 820-95
    • code or 10 at item 32, subtracted in step 6 of subsection 820-100(2)
    • code 3 at A item 32, subtracted in step 4 of section 820-195
    • code 4 at item 32, subtracted in step 4 of subsection 820-200(2)
    • code 5 at A item 32, subtracted in step 4 of section 820-205
    • code 6 at item 32, subtracted in step 4 of subsection 820-210(2).

    At G, write the amount of the average value of your associate entity debt, within the meaning of section 820-910, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

    • code 1 or 9 at item 32, subtracted in step 2 of section 820-95
    • code 2 or 10 at item 32, subtracted in step 2 of subsection 820-100(2)
    • code 3 at A item 32, subtracted in step 2 of section 820-195
    • code 4 at A item 32, subtracted in step 2 of subsection 820-200(2)
    • code 5 at item 32, subtracted in step 2 of section 820-205
    • code 6 at item 32, subtracted in step 2 of subsection 820-210(2).

    At H, write the amount of the average value of your associate entity equity, within the meaning of section 820-915, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

    • code or 9 at item 32, subtracted in step 3 of section 820-95
    • code or 10 at item 32, subtracted in step 3 of subsection 820-100(2)
    • code 3 at A item 32, subtracted in step 3 of section 820-195
    • code 4 at A item 32, subtracted in step 3 of subsection 820-200(2)
    • code 5 at A item 32, subtracted in step 3 of section 820-205
    • code 6 at A item 32, subtracted in step 3 of subsection 820-210(2).

    At I, write the amount of the average value of your associate entity excess amount, within the meaning of section 820-920, which you are required to add in working out your safe harbour debt amount as follows if you have written:

    • code 1 or 9 at A item 32, added in step 8 of section 820-95
    • code 2 or 10 at A item 32, added in step 10 of subsection 820-100(2)
    • code 3 at A item 32, added in step 6 of section 820-195
    • code 4 at A item 32, added in step 8 of subsection 820-200(2)
    • code 5 at A item 32, added in step 6 of section 820-205
    • code 6 at A item 32, added in step 8 of subsection 820-210(2).

    At J, write the amount of the average value of your excluded equity interests, within the meaning of section 820-946, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

    • code 1 or 9 at A item 32, subtracted in step 1A of section 820-95
    • code 2 or 10 at A item 32, subtracted in step 1A of subsection 820-100(2)
    • code 3 at A item 32, subtracted in step 1A of section 820-195
    • code 4 at A item 32, subtracted in step 1A of subsection 820-200(2)
    • code 5 at A item 32, subtracted in step 1A of section 820-205
    • code 6 at A item 32, subtracted in step 1A of subsection 820-210(2).

    If you have written code 2,  4,  6 or 10 (financial) at A item 32, then at K write the average value of your zero capital amount, within the meaning of section 820-942, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

    • code 2 or 10 at A item 32, subtracted in step 7 of subsection 820-100(2)
    • code 4 at A item 32, subtracted in step 5 of subsection 820-200(2)
    • code 6 at A item 32, subtracted in step 5 of subsection 820-210(2).

    If you have written code 246 or 10 (financial) at A item 32, then at L write the average value of your on-lent amount, as defined in subsection 995-1(1), which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

    • code 2 or 10 at A item 32, subtracted in step 6 of subsection 820-100(3)
    • code 4 at A item 32, subtracted in step 4 of subsection 820-200(3)
    • code 6 at A item 32, subtracted in step 4 of subsection 820-210(3).

    If you have written code 1,  29 or 10 at A item 32, then at M write the average value of all your controlled foreign entity equity, within the meaning of section 820-890, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

    • code 1 or 9 at A item 32, subtracted in step 5 of subsection 820-95
    • code 2  or 10 at A item 32, subtracted in step 5 of subsection 820-100(2).

    If you have written code 12, 9 or 10 at A item 32, then at N write the average value of all your controlled foreign entity debt, within the meaning of section 820-885, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

    • code 1 or 9 at A item 32, subtracted in step 4 of subsection 820-95
    • code 2 or 10 at A item 32, subtracted in step 4 of subsection 820-100(2).

    Question 38

    If you relied on an arm's length debt or capital amount calculated under Division 820 of the ITAA 1997, answer Yes at A and read on. Otherwise go to question 39.

    Write at B the arm's length debt amount or the arm's length capital amount determined under the following section as shown in the table below.

    Codes and sections

    Code you wrote at A item 32

    Section

    1, 2, 9 or 10

    820-105

    3, 4, 5 or 6

    820-215

    7

    820-315

    8

    820-410

    Question 39

    This question requires information if you have relied on the worldwide gearing debt/capital amount.

    You must answer Yes at A item 39 and complete all the applicable labels if you have written:

    • code 1 or 2 (outward investor (non-ADI)) at A item 32 and you rely on the worldwide gearing debt amount as calculated in subsection 820-110(1) or subsection 820-110(2)
    • code 3, 4,  5 or 6 (inward investing entities (non-ADI)) at item 32 and you rely on the worldwide gearing debt amount as calculated in section 820-216, section 820-217, section 820-218 or section 820-219
    • code 7 (outward investing entity (ADI)) at item 32 and you rely on the worldwide capital amount as calculated in section 820-320.
    • code 9 or 10 (inward investment vehicle and is also outward investor (non-ADI)) at A item 32 and you rely on the worldwide gearing debt amount as calculated in subsection 820-111(1) or subsection 820-111(2).

    If you have written code 8 at item 32, you do not need to complete this question.

    If you have relied on worldwide gearing debt/capital tests, answer Yes at item 39 and complete the relevant labels.

    If you have written code 7 (outward investing entity (ADI)) at item 32 write:

    • At B, the worldwide group capital ratio worked out in accordance with subsection 820-320(3). For example, if the amount worked out under step 1 of the method statement in subsection 820-320(3) is 5.42% of the amount worked out under step 2, the fractional whole number you must write at B is 0.05420.
    • At C, your worldwide capital amount worked out under subsection 820-320(2).

    If you have written code or 2 (outward investor (non-ADI)) at item 32 write:

    • At D, the amount of your worldwide debt, as defined in subsection 995-1(1), used to calculate the result of step 1 in the following subsections if you have written      
      • code 1 at A item 32, step 1 in subsection 820-110(1)
      • code 2 at item 32, step 1 in subsection 820-110(2).
       
    • At E, the amount of your worldwide equity, as defined in subsection 995-1(1), used to calculate the result of step 1 in the following subsections if you have written      
      • code 1 at item 32, step 1 in subsection 820-110(1)
      • code 2 at item 32, step 1 in subsection 820-110(2).
       
    • At F, your worldwide gearing debt amount worked out under the following subsections if you have written      
      • code 1 at item 32, under subsection 820-110(1)
      • code 2 at A item 32, under subsection 820-110(2).
       

    If you have written code 3, 4, 5 or 6 (inward investing entity (non-ADI)), or code or 10 (inward investment vehicle which is also an outward investor (non-ADI)) at item 32 write:

    • At D, the amount of your statement worldwide debt, as defined in subsection 995-1(1), used to calculate the result of step 1 in the following sections if you have written      
      • code 3 at A item 32, step 1 in section 820-216
      • code 4 at A item 32, step 1 in section 820-217
      • code 5 at A item 32, step 1 in section 820-218
      • code 6 at item 32, step 1 in section 820-219
      • code 9 at item 32, step 1 in subsection 820-111(1)
      • code 10 at A item 32, step 1 in subsection 820-111(2).
       
    • At E, the amount of your statement worldwide equity, as defined in subsection 995-1(1), used to calculate the result of step 1 in the following sections if you have written      
      • code 3 at item 32, step 1 in section 820-216
      • code 4 at item 32, step 1 in section 820-217
      • code 5 at item 32, step 1 in section 820-218
      • code 6 at item 32, step 1 in section 820-219
      • code 9 at item 32, step 1 in subsection 820-111(1)
      • code 10 at item 32, step 1 in subsection 820-111(2).
       
    • At F, your worldwide gearing debt amount worked out under the following sections if you have written      
      • code 3 at A item 32, under section 820-216
      • code 4 at A item 32, under section 820-217
      • code 5 at A item 32, under section 820-218
      • code 6 at A item 32, under section 820-219
      • code 9 at A item 32, under subsection 820-111(1)
      • code 10 at A item 32, under subsection 820-111(2).
       
    • At G, the amount of your statement worldwide assets, as defined in subsection 995-1(1), for the purpose of applying subsection 820-90(3) if you have written      
      • code 3 at item 32, and have applied section 820-216
      • code 4 at item 32, and have applied section 820-217
      • code 5 at item 32, and have applied section 820-218
      • code 6 at item 32, and have applied section 820-219
      • code 9 at item 32, and have applied subsection 820-111(1)
      • code 10 at item 32, and have applied subsection 820-111(2).
       
    • At H, the amount of your average Australian assets, as defined in subsection 995-1(1), for the purpose of applying subsection 820-90(3) if you have written      
      • code 3 at item 32, and have applied section 820-216
      • code 4 at item 32, and have applied section 820-217
      • code 5 at item 32, and have applied section 820-218
      • code 6 at A item 32, and have applied section 820-219
      • code 9 at A item 32, and have applied subsection 820-111(1)
      • code 10 at A item 32, and have applied subsection 820-111(2).
       

    Section E: Financial services entities

    Question 40

    This question needs to be completed by qualifying foreign banks and financial entities to which Part IIIB of the ITAA 1936 applies (and have not elected out of Part IIIB).

    The dollar amounts or values asked for in this question are all based on your tax records.

    If you are a foreign bank or a qualifying foreign financial entity that carries on business operations through an Australian branch, and you have not made an election under section 160ZZVB of the ITAA 1936 that Part IIIB not apply, then the rules in Part IIIB of the ITAA 1936 apply.

    For the purposes of Part IIIB of the ITAA 1936 the following terms are defined in section 160ZZV of the ITAA 1936:

    • 'Australian branch' in relation to a foreign bank, means a permanent establishment in Australia through which the bank carries on banking business
    • 'foreign bank' means a body corporate that is a foreign authorised deposit taking institution (ADI) for the purposes of the Banking Act 1959
    • 'financial entity' and 'foreign entity' both have the meaning given in section 995-1 of the ITAA 1997.

    If you are a foreign bank or other qualifying financial entity which has not elected out of Part IIIB of the ITAA 1936, answer Yes at item 40 and complete the following:

    • At B, write the amount of your average quarterly notional borrowings within the meaning of subsection 160ZZZ(1) of the ITAA 1936. This is calculated by adding up your notional borrowings determined under subsection 160ZZZ(1) at the end of each quarter in your financial year and dividing it by four.
    • At C, write the amount of the amount of interest taken to be paid under section 160ZZZA of the ITAA 1936 (capped at LIBOR). If you are an offshore banking unit (OBU), do not include any amounts attributable to OB activities under Division 9A of Part III of ITAA 1936.
    • At D, write the amount of interest taken to be paid under section 160ZZZA of the ITAA 1936 attributable to OB activities under Division 9A of Part III of ITAA 1936 (if you are an OBU).
    • At E, write the amount of withholding tax you paid on the interest amount taken to be paid under section 160ZZZA of the ITAA 1936 (capped at LIBOR).

    Interest withholding tax is payable under section 160ZZZJ of the ITAA 1936 on 50% of the amount of interest taken to be paid under section 160ZZZA.

    Remember to also show any amounts taken to be paid under section 160ZZZE or section 160ZZZF at I and item 18d.

    Question 41

    If you are an offshore banking unit (OBU), what you show at this question helps in assessing your level of compliance with the OBU tax provisions.

    To complete this question you need to undertake the following steps:

    • For each OB activity type listed in the schedule work out the (gross) amount of your assessable OB income in accordance with section 121EE of the ITAA 1936.
    • Calculate your net OB income/loss in accordance with sections 121EE and 12EF of the ITAA 1936 for each OB activity type listed in the schedule (by subtracting exclusive OB deductions for the OB activity type from the assessable OB income for the activity).
    • Identify your OB activities undertaken with related parties.
    • Calculate the (gross) amount of your assessable OB income, within the meaning of section 121EE of the ITAA 1936, for the OB activities you have undertaken with related parties
    • Work out the amount of your general OB deduction and apportionable OB deductions for the income year in accordance with section 121EF of the ITAA 1936.
    • Work out the amount of your eligible fraction of foreign income tax you claimed as a foreign tax offset under Division 770 of the ITAA 1997.

    If you were an OBU or the head company of a consolidated group that includes an OBU, answer Yes at item 41 and complete the following.

    At B items 41a41b41c41d41e41f41g41h and 41i, write the amount of your assessable OB income for the income year determined in accordance with section 121EE of the ITAA 1936, for each specified OB activity type.

    At item 41m, write the sum of the amounts you have written at items 41a to 41i. The amount you have written at item 41m should be the amount of your total assessable OB income for the income year determined under section 121EE of the ITAA 1936.

    If the amount at any of these labels is a loss, write L in the box at the right of the amount.

    At items 41a41b41c41d41e41f41g41h and 41i, write the amount of your net OB income/loss for each specified OB activity type (calculated by subtracting the amount of your exclusive OB deductions for the income year, within the meaning of subsection 121EF(3) of the ITAA 1936, for the OB activity type, from the amount of assessable OB income which you have written at items 41a to 41i for that activity type). If this amount is a net loss, write L in the box at the right of the amount.

    At item 41j, write the sum of the amount of your general OB deduction and the amount of your apportionable OB deductions determined under section 121EF of the ITAA 1936 for all your OB activities for the income year.

    At item 41m, write the sum of the amounts you have written at items 41a to 41i, less the sum of the amount of your general OB deduction and apportionable OB deductions you have written at item 41j. If this amount is a net loss, write L in the box at the right of the amount. The amount you have written at C item 41m should be the amount of your total assessable OB income, subject to subsection 121EG(1) of the ITAA 1936 less allowable OB deductions, subject to subsection 121EG(2) of the ITAA 1936, for the income year. If this amount is a net loss, write 'L' in the box at the right of the amount.

    For the purposes of providing information at (Assessable OB income from related parties), treat the term ‘related party’ as having the same meaning as it has in determining whether you have international related party dealings.

    At items 41a41b41c41d41e41f41g41h and 41i, write the amount of your assessable OB income for the income year determined in accordance with section 121EE of the ITAA 1936, for each specified OB activity type for OB activities undertaken with related parties.

    At item 41m, write the sum of the amounts you have written at items 41a to 41i. The amount you have written at item 41m should be the amount of your total assessable OB income for the income year determined under section 121EE of the ITAA 1936 for all your OB activities undertaken with related parties.

    At E item 41n, write the eligible fraction of foreign income tax on OB income you claimed under Division 770 of the ITAA 1936.

    The foreign income tax paid on the offshore banking income of an OBU is taken to be one-third (the current offshore banking eligible fraction) of the amount of foreign income tax actually paid (see subsection 121EG(3A) of the ITAA 1936).

    Example

    During the income year, XYZ Co, an Australian taxpayer which was an OBU, extracted the following information from its tax records for its financial services activities.

    XYZ Co's financial services activities
    XYZ Co's financial services activities

    Activity type

    Related party

    Total assessable income ($)

    Assessable OB income ($)

    Assessable non-OB income ($)

    Exclusive deductions ($)

    Lending

    Yes

    100,000

    100,000

    0

    25,000

    Lending

    Yes

    150,000

    0

    150,000

    45,000

    Lending

    No

    125,000

    125,000

    0

    40,000

    Guarantee-type

    Yes

    90,000

    90,000

    0

    10,000

    Guarantee-type

    No

    110,000

    0

    110,000

    30,000

    Trading

    Yes

    250,000

    250,000

    0

    200,000

    Trading

    Yes

    140,000

    0

    140,000

    30,000

    Trading

    No

    300,000

    300,000

    0

    120,000

    Eligible contract

    No

    210,000

    210,000

    0

    60,000

    Advisory

    No

    80,000

    80,000

    0

    10,000

    Advisory

    Yes

    100,000

    100,000

    0

    25,000

    Hedge

    Yes

    390,000

    0

    390,000

    270,000

    Total

    na

    2,045,000

    1,255,000

    790,000

    865,000

    The OB income can be summarised as follows.
    The OB income can be summarised as follows.

    Activity type

    Assessable OB income ($)

    Net OB income/loss (assessable OB income – exclusive OB deductions) ($)

    Assessable OB income from related parties ($)

    Lending

    225,000

    160,000

    100,000

    Guarantee-type

    90,000

    80,000

    90,000

    Trading

    550,000

    230,000

    250,000

    Eligible contract

    210,000

    150,000

     

    Advisory

    180,000

    145,000

    100,000

    Total

    1,255,000

    765,000

    540,000

    Additional information:

    • XYZ Co has total allowable deductions of $100,000, within the meaning of subsection 121EF(4), attributable to both their OB activities and non-OB activities.
    • XYZ Co did not incur any apportionable deductions, within the meaning of subsection 121EF(5), during the income year.
    • All of XYZ Co's exclusive OB deductions and exclusive non-OB deductions, within the meaning of subsections 121EF(3) and (6), for its lending activities were for expenses in the nature of interest.
    • None of XYZ Co's exclusive deductions for any other kinds of activities were for expenses in the nature of interest.
    • XYZ Co did not claim an eligible fraction of foreign income tax as an offset.

    In accordance with subsection 121EF(4), XYZ Co works out its general OB deduction amount for its $100,000 of deductions attributable to both their OB activities and non-OB activities under the following equation:

    Deduction × (Adjusted assessable OB income ÷ Adjusted total assessable income)

    Adjusted assessable OB income is the amount of the OBU’s assessable OB income less the amount of the OBU’s exclusive OB deductions for interest (including discounts in the nature of interest).

    Adjusted total assessable income is the amount of the OBU’s total assessable income less the sum of the OBU’s exclusive OB deductions for interest and the OBU’s exclusive non-OB deductions for interest (including discounts in the nature of interest).

    Accordingly, the amount of XYZ Co's general OB deduction equals:

    • $100,000 × (A ÷ B) where  
      • A = $1,255,000 − ($25,000 + $40,000) and
      • B = $2,045,000 − ($25,000 + $40,000 + $45,000)
       
    • = $100,00 × ($1,190,000 ÷ $1,935,000)
    • = $100,000 × $0.61498
    • = $61,498

    XYZ Co completes Question 41 as follows:

    Image of Question 41 of the form completed using information privided within this example).

    End of example
    Last modified: 22 Mar 2017QC 45337