Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

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

820-395(1)    
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)

820-395(2)    
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.

Note:

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

820-395(2A)    

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.

820-395(2B)    

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

Average equity capital

820-395(3)    
The entity ' s average equity capital for an income year is the sum of the following:

(a)    

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.

Note:

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