Income Tax Assessment Act 1997



Division 820 - Thin capitalisation rules  

Subdivision 820-D - Thin capitalisation rules for outward investing entities (ADI)  

Operative provisions

SECTION 820-300   Thin capitalisation rule for outward investing entities (ADI)  

Thin capitalisation rule

This subsection disallows all or a part of each *debt deduction of an entity for an income year (to the extent that it is not attributable to an *overseas permanent establishment of the entity) if, for that year:

(a)    the entity is an *outward investing entity (ADI) (see subsection (2) ); and

(b)    the entity ' s *adjusted average equity capital (see subsection (3) ) is less than the entity ' s *minimum capital amount (see section 820-305 ).

Note 1:

This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $2 million or less, see section 820-35 .

Note 2:

To work out the amount to be disallowed, see section 820-325 .

Note 3:

For the rules that apply to an entity that is an outward investing entity (ADI) for only part of an income year, see section 820-330 in conjunction with subsection (2) of this section.

Note 4:

A consolidated group or MEC group may be an outward investing entity (ADI) to which this Subdivision applies: see Subdivisions 820-FA and 820-FB .

Outward investing entity (ADI)

The entity is an outward investing entity (ADI) for a period that is all or a part of an income year if, and only if, throughout that period, the entity is an *ADI to which at least one of the following paragraphs applies:

(a)    the entity is an *Australian controller of at least one *Australian controlled foreign entity (not necessarily the same Australian controlled foreign entity throughout that period);

(b)    the entity is an *Australian entity that carries on a *business at or through at least one *overseas permanent establishment (not necessarily the same permanent establishment throughout that period);


the entity is:

(i) an Australian entity; and

(ii) an *associate entity of another entity that is an *outward investing financial entity (non-ADI) or an *outward investing entity (ADI) for that period.

To determine whether an entity is an Australian controller of an Australian controlled foreign entity, see Subdivision 820-H .


However, the entity is not an outward investing entity (ADI) for a period that is all or a part of an income year if it is a * general class investor for that year.


Subsection (2A) does not apply for the purposes of subsection 820-46(2) (definition of general class investor ).

Adjusted average equity capital


The entity ' s adjusted average equity capital for an income year is:

(a)    the average value, for that year, of all the *ADI equity capital of the entity (other than ADI equity capital attributable to its *overseas permanent establishments); minus

(b)    the average value, for that year, of all the *controlled foreign entity equity of the entity (other than controlled foreign entity equity attributable to its overseas permanent establishments).


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


For the purposes of paragraph (3)(a) , treat treasury shares (within the meaning of *accounting standard AASB 132) in the entity as included in the *ADI equity capital of the entity, to the extent that those shares are part of the entity's eligible tier 1 capital (within the meaning of the *prudential standards).

View surrounding sectionsView surrounding sectionsBack to top

This information is provided by CCH Australia Limited Link opens in new window. View the disclaimer and notice of copyright.