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 820-210   Safe harbour debt amount - inward investor (financial)  

820-210(1)  
If the entity is an *inward investor (financial) for that 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

820-210(2)  


The total debt 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 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.


    Step 5.

    Reduce the result of step 4 by the average value, for that year, of the entity ' s *zero-capital amount that has arisen because of the Australian investments. 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 that has arisen because of the Australian investments.


    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:

    FXS Financial SA is a company that is not an Australian entity. The average value of its Australian investments is $120 million.

    The average value of its relevant excluded equity interests, associate entity debt, associate entity equity, non-debt liabilities and zero-capital amount are $5 million, $5 million, $2 million, $3 million and $5 million respectively. Deducting those 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 average zero-capital amount of $5 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

    820-210(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 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 equity 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 *non-debt liabilities of the entity that has arisen because of the Australian investments.


    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 *on-lent amount of the entity (to the extent that it is the value of all or a part 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 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 that has arisen because of the Australian investments. If the result of this step is a negative amount, it is taken to be nil.


    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:

    FXS Financial SA is a company that is not an Australian entity. The average value of its Australian investments is $120 million.

    The average value of its relevant excluded equity interests, associate entity equity, non-debt liabilities and on-lent amount are $5 million, $2 million, $3 million and $35 million respectively. Deducting those 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 the result of step 6 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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