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 820-205   820-205   Safe harbour debt amount - inward investor (general)  


If the entity is an *inward investor (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 of the following assets of the entity (the Australian investments ):

  • (a) assets that are attributable to the entity's *Australian permanent establishments;
  • (b) other assets that are held for the purposes of producing the entity's assessable income.

  • 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 that has arisen because of the Australian investments.


    Step 3.

    Reduce the result of step 2 by the average value, for that year, of all the *associate entity equity of the entity that has arisen because of the Australian investments.


    Step 4.

    Reduce the result of step 3 by the average value, for that year, of all the *non-debt liabilities of the entity that have arisen because of the Australian investments. 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:

    RJ Corporation is a company that is not an Australian entity. The average value of its Australian investments is $100 million.

    The average value of its relevant excluded equity interests, associate entity debt, associate entity equity and non-debt liabilities is $5 million, $10 million, $5 million and $5 million respectively. Deducting those amounts from the result of step 1 leaves $75 million. Multiplying $75 million by 3/5 results in $45 million. As the company does not have any associate entity excess amount, the safe harbour debt amount is therefore $45 million.


     

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