INCOME TAX ASSESSMENT ACT 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

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

Operative provisions

SECTION 820-320   Worldwide capital amount  

820-320(1)  
This section only applies if the entity is not also a *foreign controlled Australian entity throughout the income year.

820-320(2)  


The worldwide capital amount is the result of applying the method statement in this subsection. Method statement

Step 1.

Work out the average value, for the income year, of all the *risk-weighted assets of the entity, other than risk-weighted assets attributable to any of the following:

  • (a) the entity ' s *overseas permanent establishments;
  • (b) assets comprised by the *controlled foreign entity equity of the entity;
  • (c) assets for which *prudential capital deductions must be made by the entity.

  • Step 2.

    (Repealed by No 110 of 2014)


    Step 3.

    Multiply the result of step 1 by the entity ' s worldwide group capital ratio for that year (see subsection (3)).


    Step 4.

    Add to the result of step 3 the average value, for that year, of all the *tier 1 prudential capital deductions for the entity (to the extent that they are not attributable to any of the entity ' s *overseas permanent establishments or to any *Australian controlled foreign entities of which the entity is an *Australian controller). The result of this step is the worldwide capital amount .

    Example:

    Southern Cross Bank has an average value of risk-weighted assets of $150 million (having discounted those risk-weighted assets that are excluded by step 1) and the average value of its relevant tier 1 prudential capital deductions is $2 million. The entity ' s worldwide group capital ratio is 0.0875. Multiplying $150 million by 0.0875 equals $13.125 million, which is the result of step 3. Adding that amount to the average value of the relevant tier 1 prudential capital deductions equals $15.125 million, which is the worldwide capital amount.

    Worldwide group capital ratio

    820-320(3)  
    The entity ' s worldwide group capital ratio for the income year is the result of applying the method statement in this subsection. Method statement


    Step 1.

    Work out the average value, for the income year, of the eligible tier 1 capital (within the meaning of the *prudential standards) of the consolidated group of which the entity is a member (within the meaning of those standards) in accordance with those standards.


    Step 2.

    Divide the result of step 1 by the average value, for that year, of the *risk-weighted assets of that group in accordance with the *prudential standards. The result is the worldwide group capital ratio .

    Example:

    For the Southern Cross Bank, the average value of the tier 1 capital for the relevant consolidated group is $14 million. Dividing $14 million by the group ' s risk weighted assets of $160 million equals 0.0875, which is the worldwide group capital ratio.


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