Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

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

Operative provisions

SECTION 820-90   Maximum allowable debt  

Entity is not also an inward investment vehicle (general) or inward investment vehicle (financial)

820-90(1)    
The entity ' s maximum allowable debt for an income year is the greatest of the following amounts if the entity is not also an *inward investment vehicle (general) or an *inward investment vehicle (financial) for all or any part of that year:

(a)    the *safe harbour debt amount;

(b)    the *arm ' s length debt amount;

(c)    

unless the entity has *worldwide equity of nil or a negative amount - the *worldwide gearing debt amount.

Note 1:

The safe harbour debt amount differs depending on whether the entity is an outward investor (general) or an outward investor (financial), see sections 820-95 and 820-100 .

Note 2:

The worldwide gearing debt amount for an entity that is not also an inward investment vehicle (general) or an inward investment vehicle (financial) differs depending on whether the entity is an outward investor (general) or an outward investor (financial), see section 820-110 .

Entity is also an inward investment vehicle (general) or inward investment vehicle (financial)

820-90(2)    

The entity ' s maximum allowable debt for an income year is the greatest of the following amounts if the entity is also an *inward investment vehicle (general) or an *inward investment vehicle (financial) for all or any part of that year:

(a)    the *safe harbour debt amount;

(b)    the *arm ' s length debt amount;

(c)    unless subsection (3) applies to the entity - the *worldwide gearing debt amount.

Note 1:

The safe harbour debt amount differs depending on whether the entity is an outward investor (general) or an outward investor (financial), see sections 820-95 and 820-100 .

Note 2:

The worldwide gearing debt amount for an entity that is also an inward investment vehicle (general) or an inward investment vehicle (financial) differs depending on whether the entity is an outward investor (general) or an outward investor (financial), see section 820-111 .

Inward investment vehicles that are not eligible for the worldwide gearing debt amount

820-90(3)    

This subsection applies to an entity, if:

(a)    the entity has *statement worldwide equity, or *statement worldwide assets, of nil or a negative amount; or

(b)    *audited consolidated financial statements for the entity for the income year do not exist; or

(c)    the result of applying the following formula is greater than 0.5:

	Average Australian assets of the entity
	*Statement worldwide assets of the entity for the income year

where:

average Australian assets
of an entity is the average value, for the statement period mentioned in subsection (4) , of all the assets of the entity, other than:

(a) any assets attributable to the entity ' s *overseas permanent establishments; or

(b) any *debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity debt of the entity; or

(c) any *equity interests or debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity equity of the entity.

820-90(4)    

For the purposes of the definition of average Australian assets in subsection (3) the statement period is the period for which the *audited consolidated financial statements for the entity for the income year have been prepared.

820-90(5)    

For the purposes of the formula in paragraph (3)(c) , if:

(a)    an amount is included in *statement worldwide assets in respect of an asset; and

(b)    the asset was acquired, held or otherwise dealt with by an entity for a purpose (other than an incidental purpose) that included ensuring that subsection (3) does not apply to an entity; and

(c)    as a result of the acquisition, holding or dealing with of the asset, the amount included in statement worldwide assets exceeds the amount (including nil) that would otherwise be so included;

apply the amount of the excess to reduce statement worldwide assets (or statement worldwide assets as reduced by a previous application of this subsection).