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 820-225   Application to part year periods  

820-225(1)  
This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year, if:


(a) the entity is an *inward investing entity (non-ADI) for that period, but is not also an *outward investing entity (non-ADI) for all or any part of that period; and


(b) the entity ' s *adjusted average debt for that period exceeds the entity ' s *maximum allowable debt for that period.

Note:

To determine whether an entity is an inward investing entity (non-ADI) for a period, see subsection 820-185(2) .

820-225(2)  


The entity ' s adjusted average debt for that period is the result of applying the method statement in this subsection. Method statement

Step 1.

Work out the average value, for that period, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year.


Step 2.

Reduce the result of step 1 by the average value, for that period, of:

  • (a) if the entity is an *inward investment vehicle (general) or an *inward investment vehicle (financial) for that period - all the *associate entity debt of the entity; or
  • (b) if the entity is an *inward investor (general) or an *inward investor (financial) for that period - all the associate entity debt of the entity, to the extent that it is attributable to the entity ' s *Australian permanent establishments.

  • Step 3.

    If the entity is a *financial entity throughout that period, add to the result of step 2 the average value, for that period, of the entity ' s *borrowed securities amount.


    Step 4.

    Add to the result of step 3 the average value, for that period, of the *cost-free debt capital of the entity. The result of this step is the adjusted average debt .

    Note:

    To calculate an average value for the purposes of this Division, see Subdivision 820-G .

    820-225(2A)  
    The entity ' s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.

    820-225(3)  


    For the purposes of determining:


    (a) the *maximum allowable debt for that period mentioned in subsection (1); and


    (b) the amount of each *debt deduction to be disallowed;

    sections 820-190 to 820-220 apply in relation to that entity and that period with the modifications set out in the following table:


    Modifications of sections 820-190 to 820-220
    Item Provisions Modifications
    1 Sections 820-190 to 820-220 A reference to an income year is taken to be a reference to that period
    2 Section 820-220 A reference to subsection 820-185(1) is taken to be a reference to subsection (1) of this section
    3 Section 820-220 adjusted average debt is taken to have the meaning given by subsection (2) of this section
    average debt is taken to be the sum of:

    (a) the average value, for that period, of the entity ' s *debt capital that is covered by step 1 of the method statement in subsection (2) of this section; and

    (b) the average value, for that period, of the entity ' s *cost-free debt capital that is covered by step 4 of that method statement.


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