Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-C - Thin capitalisation rules for inward investing entities (non-ADI)  

Operative provisions

SECTION 820-218   820-218   Worldwide gearing debt amount - inward investor (general)  


If the entity is an *inward investor (general) for the income year, the worldwide gearing debt amount is the result of applying the method statement in this section. Method statement

Step 1.

Divide the entity ' s *statement worldwide debt for the income year by the entity ' s *statement worldwide equity for that year.


Step 2.

Add 1 to the result of step 1.


Step 3.

Divide the result of step 1 by the result of step 2.


Step 4.

Multiply the result of step 3 in this method statement by the result of step 4 in the method statement in section 820-205 .


Step 5.

Add to the result of step 4 the average value, for that year, of the entity ' s *associate entity excess amount. The result of this step is the worldwide gearing debt amount .

Example:

MLO Limited, a company that is not an Australian entity, has investments in Australia. MLO Limited has statement worldwide debt of $120 million and statement worldwide equity of $40 million.

The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 2 and 3) and multiplying the result by $75 million (which is the result of step 4 of the method statement in section 820-205 ) equals $56.25 million. As the average value of the company ' s associate entity excess amount is $4 million, the worldwide gearing debt amount is therefore $60.25 million.


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