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 820-200   Safe harbour debt amount - inward investment vehicle (financial)  

820-200(1)  
If the entity is an *inward investment vehicle (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

820-200(2)  


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


Step 5.

Reduce the result of step 4 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 6.

Multiply the result of step 5 by 15/16 .


Step 7.

Add to the result of step 6 the average value, for that year, of the entity ' s *zero-capital amount.


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 total debt amount .

Example:

KJW Finance Pty Ltd, a company that is an Australian entity, has an average value of assets of $120 million.

The average values of its excluded equity interests, associate entity debt, associate entity equity, its non-debt liabilities and its zero-capital amount are $5 million, $5 million, $3 million, $2 million and $5 million respectively. Deducting these amounts from the result of step 1 (through applying steps 1A to 5) leaves $100 million. Multiplying $100 million by 15/16 results in $93.75 million. Adding the zero-capital amount of $5 million to $93.75 million results in $98.75 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $98.75 million.

Adjusted on-lent amount

820-200(3)  


The adjusted on-lent amount is the result of applying the method statement in this subsection. 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 *non-debt liabilities of the entity.


Step 4.

Reduce the result of step 3 by the amount (the average on-lent amount ) which is the average value, for that year, of the entity ' s *on-lent amount. 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 on-lent amount.


Step 7.

Reduce the result of step 6 by the average value, for that year, of all the *associate entity debt of the entity.


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 adjusted on-lent amount .

Example:

KJW Finance Pty Ltd, a company that is an Australian entity, has an average value of assets of $120 million.

The average values of its excluded equity interests, associate entity equity, non-debt liabilities and on-lent amount are $5 million, $3 million, $2 million and $35 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. Adding the average on-lent amount of $35 million results in $80 million. Reducing $80 million by the associate entity debt amount of $5 million results in $75 million. As the company does not have any associate entity excess amount, the adjusted on-lent amount is therefore $75 million.


 

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