Income Tax Assessment Act 1997



Division 820 - Thin capitalisation rules  

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

Operative provisions

SECTION 820-395   Thin capitalisation rule for inward investing entities (ADI)  

Thin capitalisation rule

This subsection disallows all or a part of each *debt deduction of an entity for an income year if, for that year:

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

(b)    the entity ' s *average equity capital (see subsection (3) ) is less than its *minimum capital amount (see section 820-400 );

to the extent that the debt deduction:

(c)    is attributable to an *Australian permanent establishment of the entity at or through which it carries on its banking business; and

(d)    is not an *allowable OB deduction.

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 820-415 .

Note 3:

For the rules that apply to an entity that is an inward investing entity (ADI) for part of an income year, see section 820-420 in conjunction with subsection (2) of this section.

Note 4:

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

Inward investing entity (ADI)

The entity is an inward 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 a *foreign bank that carries on its banking business in Australia at or through one or more of its *Australian permanent establishments.


The entity is required to keep certain records, see Subdivision 820-L .


However, the entity is not an inward 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 ).

Average equity capital

The entity ' s average equity capital for an income year is the sum of the following:


the average value, for that year, of the *ADI equity capital of the entity that:

(i) is attributable to the *Australian permanent establishments at or through which it carries on its banking business in Australia; but

(ii) has not been allocated to the *OB activities of the Australian permanent establishments;

(b)    the average value, for that year, of the total amounts that:

(i) are made available by the entity to the Australian permanent establishments of the entity as loans to the Australian permanent establishments; and

(ii) do not give rise to any *debt deductions of the entity for that or any other income year.

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

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