Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

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

Operative provisions

SECTION 820-195   820-195   Safe harbour debt amount - inward investment vehicle (general)  


If the entity is an *inward investment vehicle (general) for the income year, the safe harbour debt amount is the result of applying the method statement in this section. 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 *non-debt liabilities of the entity. If the result of this step is a negative amount, it is taken to be nil.


Step 5.

Multiply the result of step 4 by 3/5 .


Step 6.

Add to the result of step 5 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:

ALWZ Ltd, a company that is an Australian entity, has an average value of assets of $100 million.

The average values of its excluded equity interests, associate entity debt, associate entity equity and non-debt liabilities are $5 million, $10 million, $5 million and $5 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 4) leaves $75 million. Multiplying $75 million by 3/5 results in $45 million. As the average value of the company ' s associate entity excess amount is $2 million, the safe harbour debt amount is therefore $47 million.


 

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