INCOME TAX ASSESSMENT ACT 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

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

Operative provisions

SECTION 820-190   Maximum allowable debt  

820-190(1)  
The entity's maximum allowable debt for an income year is the greatest of the following amounts:


(a) the *safe harbour debt amount;


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


(c) unless subsection (2) applies to the entity - the *worldwide gearing debt amount.

Entities that are not eligible for the worldwide gearing debt amount

820-190(2)  
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
:


(a) of an *Australian entity - is the average value, for the statement period mentioned in subsection (3), of all the assets of the entity, other than:


(i) 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

(ii) 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; and


(b) of a *foreign entity - is the average value, for the statement period mentioned in subsection (3), of all the assets of the entity that are:


(i) located in Australia; or

(ii) attributable to the entity's *Australian permanent establishments; or

(iii) debt interests held by the entity, that were *issued by an *Australian entity and are *on issue;

(iv) equity interests held by the entity in an *Australian entity.

820-190(3)  
For the purposes of the definition of average Australian assets in subsection (2) the statement period is the period for which the *audited consolidated financial statements for the entity for the income year have been prepared.

820-190(4)  
For the purposes of the formula in paragraph (2)(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 (2) 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).


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