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 820-100   Safe harbour debt amount - outward investor (financial)  

820-100(1)  
If the entity is an *outward investor (financial) for the income year, the safe harbour debt amount is the lesser of the following amounts:


(a) the *total debt amount (worked out under subsection (2));


(b) the *adjusted on-lent amount (worked out under subsection (3)).

However, if the 2 amounts are equal, it is the total debt amount.

Total debt amount

820-100(2)  


The total debt amount is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to the entity's *overseas permanent establishments. Method statement

Step 1.

Work out the average value, for the income year, of all the assets of the entity.


Step 1A.

Reduce the result of step 1 by the average value, for that year, of all the *excluded equity interests in the entity.


Step 2.

Reduce the result of step 1A by the average value, for that year, of all the *associate entity debt of the entity.


Step 3.

Reduce the result of step 2 by the average value, for that year, of all the *associate entity equity of the entity.


Step 4.

Reduce the result of step 3 by the average value, for that year, of all the *controlled foreign entity debt of the entity.


Step 5.

Reduce the result of step 4 by the average value, for that year, of all the *controlled foreign entity equity of the entity.


Step 6.

Reduce the result of step 5 by the average value, for that year, of all the *non-debt liabilities of the entity.


Step 7.

Reduce the result of step 6 by the average value, for that year, of the entity's *zero-capital amount. If the result of this step is a negative amount, it is taken to be nil.


Step 8.

Multiply the result of step 7 by 15/16.


Step 9.

Add to the result of step 8 the average value, for that year, of the entity's *zero-capital amount.


Step 10.

Add to the result of step 9 the average value, for that year, of the entity's *associate entity excess amount. The result of this step is the total debt amount .

Example:

GLM Limited, a company that is an Australian entity, has an average value of assets (other than assets attributable to its overseas permanent establishments) of $160 million.

The average values of its relevant excluded equity interests, associate entity debt, associate entity equity, controlled foreign entity debt, controlled foreign entity equity, non-debt liabilities and zero-capital amount are $5 million, $5 million, $5 million, $9 million, $6 million, $5 million and $4 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 7) leaves $121 million. Multiplying $121 million by 15/16 results in $113.4375 million. Adding the average zero-capital amount of $4 million results in $117.4375 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $117.4375 million.

Adjusted on-lent amount

820-100(3)  


The adjusted on-lent amount is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to the entity's *overseas permanent establishments. Method statement

Step 1.

Work out the average value, for the income year, of all the assets of the entity.


Step 1A.

Reduce the result of step 1 by the average value, for that year, of all the *excluded equity interests in the entity.


Step 2.

Reduce the result of step 1A by the average value, for that year, of all the *associate entity equity of the entity.


Step 3.

Reduce the result of step 2 by the average value, for that year, of all the *controlled foreign entity debt of the entity.


Step 4.

Reduce the result of step 3 by the average value, for that year, of all the *controlled foreign entity equity of the entity.


Step 5.

Reduce the result of step 4 by the average value, for that year, of all the *non-debt liabilities of the entity.


Step 6.

Reduce the result of step 5 by the amount (the average on-lent amount ) which is the average value, for that year, of the entity's *on-lent amount (other than *controlled foreign entity debt of the entity). If the result of this step is a negative amount, it is taken to be nil.


Step 7.

Multiply the result of step 6 by 3/5.


Step 8.

Add to the result of step 7 the average on-lent amount.


Step 9.

Reduce the result of step 8 by the average value, for that year, of all the *associate entity debt of the entity.


Step 10.

Add to the result of step 9 the average value, for that year, of the entity's *associate entity excess amount. The result of this step is the adjusted on-lent amount .

Example:

GLM Limited, a company that is an Australian entity, has an average value of assets (other than assets attributable to its overseas permanent establishments) of $160 million.

The average values of its relevant excluded equity interests, associate entity equity, controlled foreign entity debt, controlled foreign entity equity, non-debt liabilities and on-lent amount are $5 million, $5 million, $9 million, $6 million, $5 million and $35 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 6) leaves $95 million. Multiplying $95 million by 3/5 results in $57 million. Adding the average on-lent amount of $35 million results in $92 million. Reducing the result of step 8 by the associate entity debt amount of $5 million equals $87 million. As the company does not have any associate entity excess amount, the adjusted on-lent amount is therefore $87 million.


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