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 820-95   820-95   Safe harbour debt amount - outward investor (general)  


If the entity is an *outward investor (general) for the income year, the safe harbour debt amount is the result of applying the method statement in this section. 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. 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 value, for that year, of the entity's *associate entity excess amount. The result of this step is the safe harbour debt amount .

Example:

AK Pty Ltd, a company that is an Australian entity, has an average value of assets (other than assets attributable to its overseas permanent establishments) of $100 million.

The average values of its excluded equity interests, associate entity debt, associate entity equity, controlled foreign entity debt, controlled foreign entity equity and non-debt liabilities are $5 million, $10 million, $8 million, $5 million, $2 million and $5 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 6) leaves $65 million. Multiplying $65 million by 3/5 results in $39 million. As the average value of the company's associate entity excess amount is $4.5 million, the safe harbour debt amount is therefore $43.5 million.


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