Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-FB - Grouping branches of foreign banks and foreign financial entities with a consolidated group, MEC group or single Australian resident company  

Effect of choice

SECTION 820-605   820-605   Effect on establishment entity if certain debt deductions disallowed  


If:


(a) apart from this Division, a *debt deduction would be a deduction of the establishment entity for an income year; and


(b) this Division (as applying because of this Subdivision) disallows all or part of the deduction (treated as a deduction of the *head company or single company);

this section disallows the deduction of the establishment entity, or that part of it, as appropriate.

Note 1A:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

Note 1:

This Division does not disallow a debt deduction that the establishment entity incurs during the grouping period and that consists of a cost that is:

  • attributable to an Australian permanent establishment covered by the choice under section 820-597 or 820-599 ; and
  • paid or owed to the head company or single company.
  • The cost is not a debt deduction of the head company or single company for the purposes of this Division as applying because of this Subdivision. This is because subsection 820-603(3) or (4) treats the Australian permanent establishment as being part of the head company or single company, so the cost is treated as being paid or owed by the head company or single company to itself.

    Because subsection 820-603(3) or (4) also treats the Australian permanent establishment as not being part of the establishment entity, the cost is not a debt deduction of the establishment entity, so it is not disallowed by this Division as applying to the establishment entity.

    Note 2:

    This Division also does not disallow a debt deduction that the head company or single company incurs during the grouping period and that consists of a cost that is:

  • paid or owed to the establishment entity; and
  • is attributable to an Australian permanent establishment covered by the choice under section 820-597 or 820-599 .
  • The cost is not a debt deduction of the head company or single company for the purposes of this Division as applying because of this Subdivision. This is because subsection 820-603(3) or (4) treats the Australian permanent establishment as being part of the head company or single company, so the cost is treated as being paid or owed by the head company or single company to itself.


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