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 820-100   Safe harbour debt amount - outward investor (financial)  

820-100(1)  
If the entity is an *outward investor (financial) for the income year, the safe harbour debt amount is the lesser of the following amounts:


(a) the *total debt amount (worked out under subsection (2));


(b) the *adjusted on-lent amount (worked out under subsection (3)).

However, if the 2 amounts are equal, it is the total debt amount.

Total debt amount

820-100(2)  


The total debt amount is the result of applying the method statement in this subsection. 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.


Step 7.

Reduce the result of step 6 by the average value, for that year, of the entity ' s *zero-capital amount. If the result of this step is a negative amount, it is taken to be nil.


Step 8.

Multiply the result of step 7 by 15/16 .


Step 9.

Add to the result of step 8 the average value, for that year, of the entity ' s *zero-capital amount.


Step 10.

Add to the result of step 9 the average value, for that year, of the entity ' s *associate entity excess amount. The result of this step is the total debt amount .

Example:

GLM Limited, a company that is an Australian entity, has an average value of assets (other than assets attributable to its overseas permanent establishments) of $160 million.

The average values of its relevant excluded equity interests, associate entity debt, associate entity equity, controlled foreign entity debt, controlled foreign entity equity, non-debt liabilities and zero-capital amount are $5 million, $5 million, $5 million, $9 million, $6 million, $5 million and $4 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 7) leaves $121 million. Multiplying $121 million by 15/16 results in $113.4375 million. Adding the average zero-capital amount of $4 million results in $117.4375 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $117.4375 million.

Adjusted on-lent amount

820-100(3)  


The adjusted on-lent amount is the result of applying the method statement in this subsection. 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 equity of the entity.


Step 3.

Reduce the result of step 2 by the average value, for that year, of all the *controlled foreign entity debt of the entity.


Step 4.

Reduce the result of step 3 by the average value, for that year, of all the *controlled foreign entity equity of the entity.


Step 5.

Reduce the result of step 4 by the average value, for that year, of all the *non-debt liabilities of the entity.


Step 6.

Reduce the result of step 5 by the amount (the average on-lent amount ) which is the average value, for that year, of the entity ' s *on-lent amount (other than *controlled foreign entity debt 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 on-lent amount.


Step 9.

Reduce the result of step 8 by the average value, for that year, of all the *associate entity debt of the entity.


Step 10.

Add to the result of step 9 the average value, for that year, of the entity ' s *associate entity excess amount. The result of this step is the adjusted on-lent amount .

Example:

GLM Limited, a company that is an Australian entity, has an average value of assets (other than assets attributable to its overseas permanent establishments) of $160 million.

The average values of its relevant excluded equity interests, associate entity equity, controlled foreign entity debt, controlled foreign entity equity, non-debt liabilities and on-lent amount are $5 million, $5 million, $9 million, $6 million, $5 million and $35 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 6) leaves $95 million. Multiplying $95 million by 3/5 results in $57 million. Adding the average on-lent amount of $35 million results in $92 million. Reducing the result of step 8 by the associate entity debt amount of $5 million equals $87 million. As the company does not have any associate entity excess amount, the adjusted on-lent amount is therefore $87 million.


 

Disclaimer and notice of copyright applicable to materials provided by CCH Australia Limited

CCH Australia Limited ("CCH") believes that all information which it has provided in this site is accurate and reliable, but gives no warranty of accuracy or reliability of such information to the reader or any third party. The information provided by CCH is not legal or professional advice. To the extent permitted by law, no responsibility for damages or loss arising in any way out of or in connection with or incidental to any errors or omissions in any information provided is accepted by CCH or by persons involved in the preparation and provision of the information, whether arising from negligence or otherwise, from the use of or results obtained from information supplied by CCH.

The information provided by CCH includes history notes and other value-added features which are subject to CCH copyright. No CCH material may be copied, reproduced, republished, uploaded, posted, transmitted, or distributed in any way, except that you may download one copy for your personal use only, provided you keep intact all copyright and other proprietary notices. In particular, the reproduction of any part of the information for sale or incorporation in any product intended for sale is prohibited without CCH's prior consent.