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Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

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PART 4-5 - GENERAL  

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Division 820 - Thin capitalisation rules  

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Subdivision 820-I - Associate entities  

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SECTION 820-920   Associate entity excess amount  

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820-920(1)  

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This section applies to an entity (the relevant entity ) that is an *outward investing entity (non-ADI) or an *inward investing entity (non-ADI) for a period that is all or a part of an income year.
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820-920(2)  

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The relevant entity ' s associate entity excess amount at a particular time during that period is the result of applying the method statement in this subsection. Method statement

Step 1.

Work out the premium excess amount (see subsection (3)), as at that particular time, for an *associate entity of the relevant entity that is the issuer of an *equity interest or a *debt interest any value of which is all or a part of the relevant entity ' s *associate entity equity at that time.


Step 2.

Add to the result of step 1 the attributable safe harbour excess amount (see subsection (4)) for that *associate entity as at that time.


Step 3.

Apply steps 1 and 2 to all such *associate entities of the relevant entity and add all the results that are positive amounts. The result of this step is the associate entity excess amount .

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820-920(3)  

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An *associate entity ' s premium excess amount at a particular time during that period is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to an entity ' s *overseas permanent establishments if it is an *outward investing entity (non-ADI) at that time. Method statement

Step 1.

Work out the value, as at that particular time, of all the *associate entity equity of the relevant entity that is attributable to the *associate entity (disregarding the value of any *debt interest *issued by the associate entity that is held by the relevant entity at that time).


Step 2.

Work out the value, as at that time, of all the *equity capital of the *associate entity that is attributable to *equity interests that the relevant entity holds in the associate entity at that time (except equity interests whose value is all or a part of the relevant entity ' s *controlled foreign entity equity at that time).


Step 3.

Reduce the result of step 1 by the result of step 2. However, if the result of step 2 is a negative amount, the result of step 2 is taken to be nil for the purpose of this step.


Step 4.

Multiply the result of step 3 by:

  • (a) 15/16 if the *associate entity excess amount is applied for the purpose of working out the *total debt amount of the relevant entity for that period under subsection 820-100(2) , 820-200(2) or 820-210(2) ; or
  • (b) 3/5 if the associate entity excess amount is applied for the purpose of working out the *adjusted on-lent amount of the relevant entity for that period under subsection 820-100(3) , 820-200(3) or 820-210(3) ; or
  • (c) 3/5 if the associate entity excess amount is applied for the purpose of working out the *safe harbour debt amount of the relevant entity for that period under section 820-95 , 820-195 or 820-205 ; or
  • (d) the result of step 4 of the method statement in subsection (1) or (2) of section 820-110 (as appropriate) if the associate entity excess amount is applied for the purpose of working out the *worldwide gearing debt amount of the relevant entity for that period.

    • The result of this step is the premium excess amount .

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    820-920(4)  

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    The *associate entity ' s attributable safe harbour excess amount at a particular time during that period is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to an entity ' s *overseas permanent establishments if it is an *outward investing entity (non-ADI) at that time. Method statement

    Step 1.

    Work out the *safe harbour debt amount of the *associate entity for the day during which that particular time occurs, as if:

  • (a) the associate entity were an *outward investing entity (non-ADI) or *inward investing entity (non-ADI), as appropriate, for the period consisting only of that day; and
  • (b) if the associate entity would otherwise be treated as an *outward investor (financial) for that day and the relevant entity is not a *financial entity throughout that day - the associate entity were an *outward investor (general) for that day; and
  • (c) if the associate entity would otherwise be treated as an *inward investment vehicle (financial) for that day and the relevant entity is not a financial entity throughout that day - the associate entity were an *inward investment vehicle (general) for that day; and
  • (d) if the associate entity would otherwise be treated as an *inward investor (financial) for that day and the relevant entity is not a financial entity throughout that day - the associate entity were an *inward investor (general) for that day.


    • Step 2.

    Reduce the result of step 1 by the value of the *adjusted average debt of the *associate entity for that day as if it had been the kind of entity that it is taken to be under step 1 for that day. If the result of this step is a negative amount, it is taken to be nil.


    Step 3.

    Multiply the result of step 2 by the sum of:

  • (a) the value, as at that time, of all the *equity capital of the *associate entity that is attributable to the relevant entity at that time; and
  • (b) the value, as at that time, of all the *debt interests *issued by the associate entity that are covered by subsection (5), and held by the relevant entity, at that time; and
  • (c) the value, as at that time, of all the debt interests issued by the associate entity that are covered by subsection (6), and held by the relevant entity, at that time.


    • Step 4.

    Divide the result of step 3 by the sum of:

  • (a) the value, as at that time, of all the *equity capital of the *associate entity; and
  • (b) the value, as at that time, of all the *debt interests *issued by the associate entity that are covered by subsection (5) at that time; and
  • (c) the value, as at that time, of all the debt interests issued by the associate entity that are covered by subsection (6) at that time.

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    820-920(5)  

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    For the purposes of the method statement in subsection (4), this subsection covers a *debt interest at a particular time if the interest satisfies all of the following:


    (a) the interest is *on issue at that time;


    (b) neither the value of the interest, nor any part of that value, is all or a part of any *cost-free debt capital of the issuer of the interest at that time;


    (c) the interest does not give rise to any cost, at any time, that is covered by paragraph 820-40(1)(a) .

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    820-920(6)  

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    For the purposes of the method statement in subsection (4), this subsection covers a *debt interest at a particular time if the interest satisfies both of the following:


    (a) the interest is *on issue at that time;


    (b) the interest gives rise to a cost, at any time, that is covered by paragraph 820-40(1)(a), but the cost is not deductible from the assessable income of the issuer of the interest for any income year.

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