Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

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

820-300(1)    
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)

820-300(2)    
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);

(c)    the entity is:

(i) an Australian entity; and

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

Note:

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

Adjusted average equity capital

820-300(3)    

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).

Note:

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

820-300(4)    

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).