Income Tax Assessment Act 1997



Division 820 - Thin capitalisation rules  

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

Operative provisions

SECTION 820-420   Application to part year periods  

This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year if, for that period:

(a)    the entity is an *inward investing entity (ADI); and

(b)    the entity ' s *average equity capital is less than its *minimum capital amount;

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.


To determine whether an entity is an inward investing entity (ADI) for that period, see subsection 820-395(2) .

The entity ' s average equity capital for that period is the sum of the following:

(a)    the average value, for that period, of the *equity capital of the entity that:

(i) is attributable to its *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 period, 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.

For the purposes of determining:

(a)    the entity ' s *minimum capital amount for that period; and

(b)    the amount of each *debt deduction to be disallowed;

sections 820-400 to 820-415 apply in relation to that entity and that period with the modifications set out in the following table:

Modifications of sections 820-400 to 820-415
Item Provisions Modifications
1 Sections 820-400 to 820-415 A reference to an income year is taken to be a reference to that period
2 Section 820-415 The reference to subsection 820-395(1) is taken to be a reference to subsection (1) of this section
3 Section 820-415 average debt is taken to be the average value, for that period, of all the *debt capital of the entity that gives rise to its *debt deductions (other than *allowable OB deductions) for that year that are amounts incurred by the entity during that period
average equity capital has the meaning given by subsection (2) of this section

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