New Business Tax System (Thin Capitalisation) Act 2001 (Cth)
Contents
[
The Parliament of Australia enacts:
This Act may be cited as the
New Business Tax System (Thin Capitalisation) Act 2001 .
(1) Subject to subsections (2) and (3), this Act is taken to have commenced on 1 July 2001, immediately after the commencement of the
New Business Tax System (Debt and Equity) Act 2001 .(2) Items 17 and 19 of Schedule 1 are taken to have commenced on the later of:
(a) 1 July 2001, immediately after the commencement of the
New Business Tax System (Debt and Equity) Act 2001 ; or(b) the time when the
Corporations Act 2001 commences.(3) Item 18 of Schedule 1 is taken to have commenced on the later of:
(a) 1 July 2001, immediately after the commencement of the
New Business Tax System (Debt and Equity) Act 2001 ; or(b) the time when Part 2 of the
Financial Sector (Collection of Data) Act 2001 commences.
Subject to section 2, each Act that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms.
Repeal the Chapter, substitute:
[The next Division is Division 820.]
Guide to Division 820
820‑A Preliminary
820‑B Thin capitalisation rules for outward investing entities (non‑ADI)
820‑C Thin capitalisation rules for inward investing entities (non‑ADI)
820‑D Thin capitalisation rules for outward investing entities (ADI)
820‑E Thin capitalisation rules for inward investing entities (ADI)
820‑F How this Division applies to resident TC groups
820‑G Calculating the average values
820‑H Control of entities
820‑I Associate entities
820‑J Equity interests in trusts and partnerships
820‑K Zero‑capital amounts
820‑L Record keeping requirements
This Division applies to foreign controlled Australian entities, Australian entities that operate internationally and foreign entities that operate in Australia .
Financing expenses that an entity can otherwise deduct from its assessable income may be disallowed under this Division in the following circumstances:
• for an entity that is not an authorised deposit‑taking institution for the purposes of the
Banking Act 1959 (anADI )—the entity’s debt exceeds the prescribed level (and the entity is therefore “thinly capitalised”);• for an entity that is an ADI—the entity’s capital is less than the prescribed level (and the entity is therefore “thinly capitalised”).
820‑5 Does this Division apply to an entity?
820‑10 Map of Division
The following diagram shows you how to work out whether this Division applies to an entity.
The following table sets out a map of this Division.
1 | Subdivision 820‑B or 820‑C |
|
2 | Subdivision 820‑D or 820‑E |
|
3 | Subdivision 820‑F | special rules to apply this Division to resident TC groups. |
4 | Subdivision 820‑G | the methods of calculating the average value of a matter for the purposes of this Division. |
5 | Subdivision 820‑H | the rules for determining:
|
6 | Subdivision 820‑I | the meaning of various concepts about associate entity for the purposes of this Division. |
7 | Subdivision 820‑J | the meaning of equity interests in trusts and partnerships for the purposes of this Division. |
8 | Subdivision 820‑K | the meaning of zero‑capital amount for the purposes of this Division. |
9 | Subdivision 820‑L | special record keeping requirements for the purposes of this Division. |
[This is the end of the Guide.]
820‑30 Object of Division
820‑35 Application—$250,000 threshold
820-37 Application—assets threshold
820‑40 Meaning of
debt deduction
The Object of this Division is to ensure that the following entities do not reduce their tax liabilities by using an excessive amount of *debt capital to finance their Australian operations:
(a) *Australian entities that operate internationally;
(b) Australian entities that are foreign controlled;
(c) *foreign entities that operate in Australia .
Subdivision 820‑B, 820‑C, 820‑D or 820‑E does not apply to disallow any *debt deduction of an entity for an income year if the total debt deductions of that entity and all its *associate entities for that year are $250,000 or less.
Subdivision 820‑B, 820‑C, 820‑D or 820‑E does not apply to disallow any *debt deduction of an entity for an income year if:
(a) the entity is an *outward investing entity (non‑ADI) or an *outward investing entity (ADI) for a period that is all or any part of that year; and
(b) the entity is not also an *inward investing entity (non‑ADI) or an *inward investing entity (ADI) for all or any part of that period; and
(c) the result of applying the following formula is equal to or greater than 0.9:
where:
average Australian assets of an entity is the average value, for that year, of all the assets of the entity, other than:
(a) assets attributable to the entity’s *overseas permanent establishment; or
(b) assets comprised by the entity’s *controlled foreign entity equity; or
(c) assets comprised by the entity’s *controlled foreign entity debt.
average total assets of an entity means the average value, for that year, of all the assets of the entity.
(1)
Debt deduction ,of an entity and for an income year, is a cost incurred by the entity in relation to a *debt interest issued by the entity, to the extent to which:
(a) the cost is:
(i) interest, an amount in the nature of interest, or any other amount that is calculated by reference to the time value of money; or
(ii) the difference between the *financial benefits received, or to be received, by the entity under the *scheme giving rise to the debt interest and the financial benefits provided, or to be provided, under that scheme; or
(iii) any amount directly incurred in obtaining or maintaining the financial benefits received, or to be received, by the entity under the scheme giving rise to the debt interest; or
(iv) any other expense incurred by the entity that is specified in the regulations made for the purposes of this subparagraph; and
(b) the entity can, apart from this Division, deduct the cost from its assessable income for that year; and
(c) the cost is not incurred before 1 July 2001 if the entity can deduct it under section 25‑25.
(2) A cost covered by paragraph (1)(a) includes, but is not limited to, any of the following:
(a) an amount in substitution for interest;
(b) a discount in respect of a security;
(c) a fee or charge in respect of a debt, including application fees, line fees, service fees, brokerage and stamp duty in respect of document registration or security for the debt interest;
(d) an amount that is taken under an *income tax law to be an amount of interest in respect of a lease, a hire purchase arrangement or any other *arrangement specified in that law;
(e) any loss in respect of:
(i) a reciprocal purchase agreement (otherwise known as a repurchase agreement);
(ii) a sell‑buyback arrangement;
(iii) a securities loan arrangement;
(f) any amount covered by paragraph (1)(a) that has been assigned or is dealt with in any way on behalf of the party who would otherwise be entitled to that amount.
(3) To avoid doubt, the following amounts that are incurred by an entity in relation to a *debt interest issued by the entity are not covered by paragraph (1)(a):
(a) losses and outgoings directly associated with hedging or managing the financial risk in respect of the debt interest;
(b) losses incurred by the entityin relation to which the following apply:
(i) the losses would otherwise be a cost covered by subparagraph (1)(a)(ii); but
(ii) the benefits mentioned in that subparagraph are measured in a foreign currency or a unit of account other than Australian currency (for example, ounces of gold) and the losses have arisen only because of changes in the rate of converting that foreign currency or that unit of account into Australian currency;
(c) salary or wages;
(d) rental expenses for a lease if the lease is not a debt interest;
(e) an expense specified in the regulations made for the purposes of this paragraph.
This Subdivision sets out the thin capitalisation rules that apply to an Australian entity that has certain types of overseas investments and is not an authorised deposit‑taking institution (an
ADI ). These rules deal with the following matters:• how to work out the entity’s maximum allowable debt for an income year;
• how all or a part of the debt deductions claimed by the entity may be disallowed if the maximum allowable debt is exceeded;
• how to apply these rules to a period that is less than an income year.
Operative provisions 820‑85 Thin capitalisation rule for outward investing entities (non‑ADI)
820‑90 Maximum allowable debt
820‑95 Safe harbour debt amount—outward investor (general)
820‑100 Safe harbour debt amount—outward investor (financial)
820‑105 Arm’s length debt amount
820‑110 Worldwide gearing debt amount
820‑115 Amount of debt deduction disallowed
820‑120 Application to part year periods
[This is the end of the Guide.]
Thin capitalisation rule
(1) This subsection disallows all or a part of each *debt deduction of an entity for an income year (to the extent that it is not attributable to an *overseas permanent establishment of the entity) if, for that year:
(a) the entity is an *outward investing entity (non‑ADI) (see subsection (2)); and
(b) the entity’s *adjusted average debt (see subsection (3)) exceeds its *maximum allowable debt (see section 820‑90).
Note 1: This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $250,000 or less, see section 820‑35.
Note 2: To work out the amount to be disallowed, see section 820‑115.
Note 3: For the rules that apply to an entity that is an outward investing entity (non‑ADI) for only a part of an income year, see section 820‑120 in conjunction with subsection (2) of this section.
Note 4: A resident TC group may be an outward investing entity (non‑ADI) to which this Subdivision applies, see Subdivision 820‑F.
Outward investing entity (non‑ADI)
(2) The entity is an
outward investing entity (non‑ADI) for a period that is all or a part of an income year if, and only if, it is:
(a) an *outward investor (general) for that period (as set out in items 1 and 3 of the following table); or
(b) an *outward investor (financial) for that period (as set out in items 2 and 4 of that table).
1 | the entity (the
| the relevant entity is not a *financial entity, nor an *ADI, at any time during that period | the relevant entity is an |
2 | the entity (the | the relevant entity is a *financial entity throughout that period | the relevant entity is an |
3 |
| the relevant entity is not a *financial entity, nor an *ADI, at any time during that period | the relevant entity is an |
4 | the entity (the | the relevant entity is a *financial entity throughout that period | the relevant entity is an |
Note 1: To determine whether an entity is an Australian controller of an Australian controlled foreign entity, see Subdivision 820‑H.
Note 2: The rules that apply to an outward investor (general) are different from those that apply to an outward investor (financial) in some instances. For example, see sections 820‑95 and 820‑100.
Adjusted average debt
(3) The entity’s
adjusted average debt for an income year 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 that year (therelevant year ), of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year.
Step 2. Reduce the result of step 1 by the average value, for the relevant year, of all the *associate entity debt of the entity (other than any *controlled foreign entity debt of the entity).
Step 3. Reduce the result of step 2 by the average value, for the relevant year, of all the *controlled foreign entity debt of the entity.
Step 4. If the entity is a *financial entity throughout the relevant year, add to the result of step 3 the average value, for that year, of the entity’s *zero‑capital amount, to the extent that:
(a) the zero‑capital amount is attributable to the securities loan arrangements mentioned in step 1 of the method statement in subsection 820‑942(1); and
(b) the securities loan arrangements are not *debt interests.
Step 5 . Add to the result of step 4 the average value, for the relevant year, of any *debt capital of the entity that does not give rise to any *debt deductions of the entity for that or any other income year, if:
(a) the debt capital is comprised of *debt interests issued to another entity that remain *on issue; and
(b) that other entity is an *outward investing entity (non‑ADI) or *inward investing entity (non‑ADI) for a period that is, or includes, all or a part of the relevant year; and
(c) for the purposes of the application of this Division to the entities, and in relation to only that part of the period that falls within the relevant year, the entities do not use the same *valuation days and the same number of valuation days to calculate the average value of their respective debt capital.
The result of this step is the
adjusted average debt .Note: To calculate an average value for the purposes of this Division, see Subdivision 820‑G.
(4) The entity’s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.
Entity is not also an inward investment vehicle (general) or inward investment vehicle (financial)
(1) The entity’s
maximum allowable debt for an income year is the greatest of the following amounts if the entity is not also an *inward investment vehicle (general) or an *inward investment vehicle (financial) for all or any part of that year:
(a) the *safe harbour debt amount;
(b) the *arm’s length debt amount;
(c) the *worldwide gearing debt amount.
Note: The safe harbour debt amount and the worldwide gearing debt amount differ depending on whether the entity is an outward investor (general) or an outward investor (financial), see sections 820‑95, 820‑100 and 820‑110.
Entity is also an inward investment vehicle (general) or inward investment vehicle (financial)
(2) The entity’s
maximum allowable debt for an income year is the greater of the following amounts if the entity is also an *inward investment vehicle (general) or an *inward investment vehicle (financial) for all or any part of that year:
(a) the *safe harbour debt amount;
(b) the *arm’s length debt amount.
Note: The safe harbour debt amount differs depending on whether the entity is an outward investor (general) or an outward investor (financial), see sections 820‑95 and 820‑100.
If the entity is an *outward investor (general) for the income year, the
safe harbour debt amount is the result of applying the method statement in this section. 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 2. Reduce the result of step 1 by the average value, for that year, of all the *associate entity debt of the entity, other than associate entity debt that is *controlled foreign 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, other than associate entity equity that is *controlled foreign 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. 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 3/4.
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 thesafe harbour debt amount .Example: AK Pty Ltd, a company that is an Australian entity, has an average value of assets (other than assets attributable to its overseas permanent establishments) of $100 million.
The average values of its relevant associate entity debt, associate entity equity, controlled foreign entity debt, controlled foreign entity equity and non‑debt liabilities are $10 million, $8 million, $5 million, $2 million and $5 million respectively. Deducting these amounts from the result of step 1 (through the application of steps 2 to 6) leaves $70 million. Multiplying $70 million by 3/4 results in $52.5 million. As the average value of the company’s associate entity excess amount is $4.5 million, the safe harbour debt amount is therefore $57 million.
(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
(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 2. Reduce the result of step 1 by the average value, for that year, of all the *associate entity debt of the entity, other than associate entity debt that is *controlled foreign 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, other than associate entity equity that is *controlled foreign 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 20/21.
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 thetotal 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 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, $9 million, $6 million, $5 million and $4 million respectively. Deducting these amounts from the result of step 1 (through applying steps 2 to 7) leaves $126 million. Multiplying $126 million by 20/21 results in $120 million. Adding the average zero capital amount of $4 million results in $124 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $124 million.
Adjusted on‑lent amount
(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 2. Reduce the result of step 1 by the average value, for that year, of all the *associate entity equity of the entity, other than associate entity equity that is *controlled foreign 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 (theaverage 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 3/4.
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, other than associate entity debt that is *controlled foreign 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 theadjusted 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 associate entity equity, controlled foreign entity debt, controlled foreign entity equity, non‑debt liabilities and on‑lent amount are $5 million, $9 million, $6 million, $5 million and $35 million respectively. Deducting these amounts from the result of step 1 (through applying steps 2 to 6) leaves $100 million. Multiplying $100 million by 3/4 results in $75 million. Adding the average on‑lent amount of $35 million results in $110 million. Reducing the result of step 8 by the associate entity debt amount of $5 million equals $105 million. As the company does not have any associate entity excess amount, the adjusted on‑lent amount is therefore $105 million.
(1) The
arm’s length debt amount is a notional amount that, having regard to the factual assumptions set out in subsection (2) and the relevant factors mentioned in subsection (3), would satisfy both paragraphs (a) and (b):
(a) the amount represents a notional amount of *debt capital that:
(i) the entity would reasonably be expected to have throughout the income year; and
(ii) would give rise to an amount of *debt deductions of the entity for that or any other income year; and
(iii) would be attributable to the entity’s Australian business as mentioned in subsection (2);
(b) commercial lending institutions that were not *associates of the entity (the
notional lenders ) would reasonably be expected to have entered into *schemes that would:(i) give rise to *debt interests that constituted that notional amount of debt capital of the entity; and
(ii) provide for terms and conditions for the debt interests that would reasonably be expected to have applied if the entity and the notional lenders had been dealing at arm’s length with each other throughout the income year mentioned in subparagraph (1)(a)(i).
Note: The entity must keep records in accordance with section 820‑980 if the entity works out an amount under this section.
Factual assumptions
(2) Irrespective of what actually happened during that year, the following assumptions must be made in working out that amount:
(a) the entity’s commercial activities in connection with Australia (the
Australian business ) during that year do not include:(i) any *business carried on by the entity at or through its *overseas permanent establishments; and
(ii) the holding of any *associate entity debt, *controlled foreign entity debt or *controlled foreign entity equity; and
(b) the entity had carried on the Australian business that it actually carried on during that year;
(c) the nature of the entity’s assets and liabilities (to the extent that they are attributable to the Australian business) had been as they were during that year;
(d) except as stated in paragraph (1)(b) and paragraph (e) of this subsection, the entity had carried on the Australian business in the same circumstances as what actually existed during that year;
(e) any guarantee, security or other form of credit support provided to the entity in relation to the Australian business during that year:
(i) by its *associates; or
(ii) by the use of assets of the entity that are attributable to the entity’s overseas permanent establishments;
is taken not to have been received by the entity.
Relevant factors
(3) On the basis of the factual assumptions set out in subsection (2), the following factors must be taken into account in determining whether or not an amount satisfies paragraphs (1)(a) and (b):
(a) the functions performed, the assets used, and the risks assumed, by the entity in relation to the Australian business throughout that year;
(b) the terms and conditions of the *debt capital that the entity actually had in relation to the Australian business throughout that year;
(c) the nature of, and title to, any assets of the entity attributable to the Australian business that were available to the entity throughout that year as security for its debt capital for that business;
(d) the purposes for which *schemes for debt capital had been actually entered into by the entity in relation to the Australian business throughout that year;
(e) the entity’s capacity to meet all its liabilities in relation to the Australian business (whether during that year or at any other time);
(f) the profit of the entity (within the meaning of the *accounting standards), and the return on its capital, in relation to the Australian business (whether during that year or at any other time);
(g) the debt to equity ratios of the following throughout that year:
(i) the entity;
(ii) the entity in relation to the Australian business;
(iii) each of the entity’s *associate entities that engage in commercial activities similar to the Australian business;
(h) the commercial practices adopted by independent parties dealing with each other at arm’s length in the industry in which the entity carries on the Australian business throughout that year (whether in Australia or in comparable markets elsewhere);
(i) the way in which the entity financed its commercial activities (other than the Australian business) throughout that year;
(j) the general state of the Australian economy throughout that year;
(k) all of the above factors existing at the time when the entity last entered into a scheme that gave rise to an actual *debt interest attributable to the Australian business that remains *on issue throughout that year;
(l) any other factors which are specified in the regulations made for the purposes of this section, including factors specific to an *outward investor (general) or an *outward investor (financial).
Commissioner’s power
(4) If the Commissioner considers an amount worked out by the entity under this section does not appropriately take into account the factual assumptions and the relevant factors, the Commissioner may substitute another amount that the Commissioner considers better reflects those assumptions and factors.
Outward investor (general)
(1) If the entity is an *outward investor (general) for the income year, the
worldwide gearing debt amount is the result of applying the method statement in this subsection.
Method statement
Step 1. Divide the average value of all the entity’s *worldwide debt for the income year by the average value of all the entity’s *worldwide equity for that year.
Step 2. Multiply the result of step 1 by 12/10.
Step 3. Add 1 to the result of step 2.
Step 4. Divide the result of step 2 by the result of step 3.
Step 5. Multiply the result of step 4 in this method statement by the result of step 6 in the method statement in section 820‑95.
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 theworldwide gearing debt amount .Example: AK Pty Ltd, a company that is an Australian entity, has an average value of worldwide debt of $83.4 million and an average value of worldwide equity of $27 million. The result of applying steps 1 and 2 is therefore 3.706. Dividing 3.706 by 4.706 (through applying steps 3 and 4) and multiplying the result by $70 million (which is the result of step 6 in the method statement in section 820‑95) equals $55.13 million. As the average value of the company’s associate entity excess amount is $4.5 million, the worldwide gearing debt amount is therefore $59.63 million.
Outward investor (financial)
(2) If the entity is an *outward investor (financial) for that year, the
worldwide gearing debt amount is the result of applying the method statement in this subsection.
Method statement
Step 1. Divide the average value of all the entity’s *worldwide debt for the income year by the average value of all the entity’s *worldwide equity for that year.
Step 2. Multiply the result of step 1 by 12/10.
Step 3. Add 1 to the result of step 2.
Step 4. Divide the result of step 2 by the result of step 3.
Step 5. Multiply the result of step 4 in this method statement by the result of step 7 in the method statement in subsection 820‑100(2).
Step 6. Add to the result of step 5 the average value, for that year, of the entity’s *zero‑capital amount (other than any zero‑capital amount that is attributable to the entity’s *overseas permanent establishments).
Step 7. Add to the result of step 6 the average value, for that year, of the entity’s *associate entity excess amount. The result of this step is theworldwide gearing debt amount .Example: GLM Limited, a company that is an Australian entity, has an average value of worldwide debt of $120 million and an average value of worldwide equity of $40 million. The result of applying steps 1 and 2 is therefore 3.6. Dividing 3.6 by 4.6 (through applying steps 3 and 4) and multiplying the result by $126 million (which is the result of step 7 of the method statement in subsection 820‑100(2)) equals $98.61 million. The average value of zero‑capital amount (see step 7 of the method statement in subsection 820‑100(2)) is $4 million. Adding that amount to $98.61 million results in $102.61 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $102.61 million.
The amount of *debt deduction disallowed under subsection 820‑85(1) is worked out using the following formula:
where:
average debt means the average value, for the income year, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year (other than any debt capital attributable to any of the entity’s *overseas permanent establishments).
debt deduction means each *debt deduction covered by subsection 820‑85(1).
excess debt means the amount by which the entity’s *adjusted average debt for that year (see subsection 820‑85(3)) exceeds its *maximum allowable debt for that year.
(1) This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year (to the extent that it is not attributable to an *overseas permanent establishment of the entity), if:
(a) the entity is an *outward investing entity (non‑ADI) for that period; and
(b) the entity’s *adjusted average debt for that period exceeds the entity’s *maximum allowable debt for that period.
Note: To determine whether an entity is an outward investing entity (non‑ADI) for that period, see subsection 820‑85(2).
(2) The entity’s
adjusted average debt for that period 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 that period, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year.
Step 2. Reduce the result of step 1 by the average value, for that period, of all the *associate entity debt of the entity (other than any *controlled foreign entity debt of the entity).
Step 3. Reduce the result of step 2 by the average value, for that period, of all the *controlled foreign entity debt of the entity.
Step 4. If the entity is a *financial entity throughout that period, add to the result of step 3 the average value, for that period, of the entity’s *zero‑capital amount, to the extent that:
(a) the zero‑capital amount is attributable to the securities loan arrangements mentioned in step 1 of the method statement in subsection 820‑942(1); and
(b) the securities loan arrangements are not *debt interests.
Step 5 . Add to the result of step 4 the average value, for that period (therelevant period ), of any *debt capital of the entity that does not give rise to any *debt deductions of the entity for that or any other income year, if:
(a) the debt capital is comprised of *debt interests issued to another entity that remain *on issue; and
(b) that other entity is an *outward investing entity (non‑ADI) or *inward investing entity (non‑ADI) for a period that is, or includes, all or a part of the relevant period; and
(c) for the purposes of the application of this Division to the entities, and in relation to only that part of the period that falls within the relevant period, the entities do not use the same *valuation days and the same number of valuation days to calculate the average value of their respective debt capital.
The result of this step is the
adjusted average debt .
(3) The entity’s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.
(4) For the purposes of determining:
(a) the *maximum allowable debt for the period mentioned in subsection (1); and
(b) the amount of each *debt deduction to be disallowed;
sections 820‑90 to 820‑115 apply in relation to that entity and that period with the modifications set out in the following table:
1 | Sections 820‑90 to 820‑115 | A reference to an income year is taken to be a reference to that period |
3 | Section 820‑115 | A reference to subsection 820‑85(1) is taken to be a reference to subsection (1) of this section |
4 | Section 820‑115 | |
This Subdivision sets out the thin capitalisation rules that apply to a foreign entity or a foreign controlled Australian entity that is not an authorised deposit‑taking institution (an
ADI ). These rules deal with the following matters:• how to work out the entity’s maximum allowable debt for an income year;
• how all or a part of the debt deductions claimed by the entity may be disallowed if the maximum allowable debt is exceeded;
• how to apply these rules to a period that is less than an income year.
Operative provisions 820‑185 Thin capitalisation rule for inward investing entities (non‑ADI)
820‑190 Maximum allowable debt
820‑195 Safe harbour debt amount—inward investment vehicle (general)
820‑200 Safe harbour debt amount—inward investment vehicle (financial)
820‑205 Safe harbour debt amount—inward investor (general)
820‑210 Safe harbour debt amount—inward investor (financial)
820‑215 Arm’s length debt amount
820‑220 Amount of debt deduction disallowed
820‑225 Application to part year periods
[This is the end of the Guide.]
Thin capitalisation rule
(1) This subsection disallows all or a part of each *debt deduction of an entity for an income year if:
(a) the entity is an *inward investing entity (non‑ADI) for that year (see subsection (2)), but is not also an *outward investing entity (non‑ADI) (see section 820‑85) for all or any part of that year; and
(b) for that year, the entity’s *adjusted average debt (see subsection (3)) exceeds its *maximum allowable debt (see section 820‑190).
Note 1: This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $250,000 or less, see section 820‑35.
Note 2: To work out the amount to be disallowed, see section 820‑220.
Note 3: For the rules that apply to an entity that is an outward investing entity (non‑ADI) as well as an inward investing entity (non‑ADI), see Subdivision 820‑B.
Note 4: For the rules that apply to an entity that is an inward investing entity (non‑ADI) for only a part of an income year, see section 820‑225 in conjunction with subsection (2) of this section.
Note 5: To calculate an average value for the purposes of this Division, see Subdivision 820‑G.
Note 6: A resident TC group may be an inward investing entity (non‑ADI) to which this Subdivision applies, see Subdivision 820‑F.
Inward investing entity (non‑ADI)
(2) The entity is an
inward investing entity (non‑ADI) for a period that is all or a part of an income year if, and only if, it is:
(a) an *inward investment vehicle (general) for that period (as set out in item 1 of the following table); or
(b) an *inward investment vehicle (financial) for that period (as set out in item 2 of that table); or
(c) an *inward investor (general) for that period (as set out in item 3 of that table); or
(d) an *inward investor (financial) for that period (as set out in item 4 of that table).
1 | *foreign controlled Australian entity throughout a period that is all or a part of an income year | is not a *financial entity, nor an *ADI, at any time during that period | |
2 | *foreign controlled Australian entity throughout a period that is all or a part of an income year | is a *financial entity throughout that period | |
3 | *foreign entity throughout a period that is all or a part of an income year | is not a *financial entity, nor an *ADI, at any time during that period | |
4 | *foreign entity throughout a period that is all or a part of an income year | is a *financial entity throughout that period | |
Note 1: To determine whether an entity is a foreign controlled Australian entity, see Subdivision 820‑H.
Note 2: The rules that apply to these 4 types of entities are different in some instances. For example, see sections 820‑195 to 820‑210.
Note 3: An entity covered by item 3 or 4 of the table may be required to keep certain records, see Subdivision 820‑L.
Adjusted average debt
(3) The entity’s
adjusted average debt for an income year is the result of applying the method statement in this subsection.
Method statement
Step 1. Work out the average value, for that year (therelevant year ), of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year.
Step 2. Reduce the result of step 1 by the average value, for the relevant year, of:
(a) if the entity is an *inward investment vehicle (general) or an *inward investment vehicle (financial) for that year—all the *associate entity debt of the entity; or
(b) if the entity is an *inward investor (general) or an *inward investor (financial) for that year—all the associate entity debt of the entity, to the extent that it is attributable to the entity’s *Australian permanent establishments.
Step 3. If the entity is a *financial entity throughout the relevant year, add to the result of step 2 the average value, for that year, of the entity’s *zero‑capital amount, to the extent that:
(a) the zero‑capital amount is attributable to the securities loan arrangements mentioned in step 1 of the method statement in subsection 820‑942(1); and
(b) the securities loan arrangements are not *debt interests.
Step 4. Add to the result of step 3 the average value, for the relevant year, of any *debt capital of the entity that does not give rise to any *debt deductions of the entity for that or any other income year, if:
(a) the debt capital is comprised of *debt interests issued to another entity that remain *on issue; and
(b) that other entity is an *outward investing entity (non‑ADI) or *inward investing entity (non‑ADI) for a period that is, or includes, all or a part of the relevant year; and
(c) for the purposes of the application of this Division to the entities, and in relation to only that part of the relevant year that falls within that period, the entities do not use the same *valuation days and the same number of valuation days to calculate the average value of their respective debt capital.
The result of this step is the
adjusted average debt .Note: To calculate an average value for the purposes of this Division, see Subdivision 820‑G.
(4) The entity’s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.
The entity’s
maximum allowable debt for an income year is the greater of the following amounts:
(a) the *safe harbour debt amount;
(b) the *arm’s length debt amount.
Note: The safe harbour debt amount differs depending on whether the entity is an inward investment vehicle (general), inward investment vehicle (financial), inward investor (general) or inward investor (financial), see sections 820‑195 to 820‑215.
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 2. Reduce the result of step 1 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 3/4.
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 thesafe 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 associate entity debt, associate entity equity and non‑debt liabilities are $10 million, $5 million and $5 million respectively. Deducting these amounts from the result of step 1 (through applying steps 2 to 4) leaves $80 million. Multiplying $80 million by 3/4 results in $60 million. As the average value of the company’s associate entity excess amount is $2 million, the safe harbour debt amount is therefore $62 million.
(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
(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 2. Reduce the result of step 1 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 20/21.
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 thetotal 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 associate entity debt, associate entity equity, its non‑debt liabilities and its zero‑capital amount are $5 million, $3 million, $2 million and $5 million respectively. Deducting these amounts from the result of step 1 (through applying steps 2 to 5) leaves $105 million. Multiplying $105 million by 20/21 results in $100 million. Adding the zero‑capital amount of $5 million to $100 million results in $105 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $105 million.
Adjusted on‑lent amount
(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 2 . Reduce the result of step 1 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 (theaverage 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 3/4.
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 theadjusted 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 associate entity equity, non‑debt liabilities and on‑lent amount are $3 million, $2 million and $35 million respectively. Deducting these amounts from the result of step 1 (through applying steps 2 to 4) leaves $80 million. Multiplying $80 million by 3/4 results in $60 million. Adding the average on‑lent amount of $35 million results in $95 million. Reducing $95 million by the associate entity debt amount of $5 million results in $90 million. As the company does not have any associate entity excess amount, the adjusted on‑lent amount is therefore $90 million.
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 (theAustralian 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 2. Reduce the result of step 1 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 3/4.
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 thesafe 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 associate entity debt, associate entity equity and non‑debt liabilities is $10 million, $5 million and $5 million respectively. Deducting those amounts from the result of step 1 leaves $80 million. Multiplying $80 million by 3/4 results in $60 million. As the company does not have any associate entity excess amount, the safe harbour debt amount is therefore $60 million.
(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
(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 (theAustralian 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 2. Reduce the result of step 1 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 20/21.
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 thetotal 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 associate entity debt, associate entity equity, non‑debt liabilities and zero‑capital amount are $5 million, $2 million, $3 million and $5 million respectively. Deducting those amounts from the result of step 1 (through applying steps 2 to 5) leaves $105 million. Multiplying $105 million by 20/21 results in $100 million. Adding the average zero‑capital amount of $5 million results in $105 million. As the company does not have any associate entity excess amount, the total debt amount is therefore $105 million.
Adjusted on‑lent amount
(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 (theAustralian 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 2. Reduce the result of step 1 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 (theaverage 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 3/4.
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 theadjusted 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 associate entity equity, non‑debt liabilities and on‑lent amount are $2 million, $3 million and $35 million respectively. Deducting those amounts from the result of step 1 (through applying steps 2 to 4) leaves $80 million. Multiplying $80 million by 3/4 results in $60 million. Adding the average on‑lent amount of $35 million results in $95 million. Reducing the result of step 6 by the associate entity debt amount of $5 million results in $90 million. As the company does not have any associate entity excess amount, the adjusted on‑lent amount is therefore $90 million.
(1) The
arm’s length debt amount is a notional amount that, having regard to the factual assumptions set out in subsection (2) and the relevant factors mentioned in subsection (3), would satisfy both paragraphs (a) and (b):
(a) the amount represents a notional amount of *debt capital that:
(i) the entity would reasonably be expected to have throughout the income year; and
(ii) would give rise to an amount of *debt deductions of the entity for that or any other income year; and
(iii) would be attributable to the entity’s Australian business as mentioned in subsection (2);
(b) commercial lending institutions that were not *associates of the entity (the
notional lenders ) would reasonably be expected to have entered into *schemes that would:(i) give rise to *debt interests that constituted that notional amount of debt capital of the entity; and
(ii) provide for terms and conditions for the debt interests that would reasonably be expected to have applied if the entity and the notional lenders had been dealing at arm’s length with each other throughout the income year mentioned in subparagraph (1)(a)(i).
Note: The entity must keep records in accordance with section 820‑980 if the entity works out an amount under this section.
Factual assumptions
(2) Irrespective of what actually happened during that year, the following assumptions must be made in working out that amount:
(a) the entity’s commercial activities in connection with Australia (the
Australian business ) during that year:(i) if the entity is an *inward investment vehicle (general) or *inward investment vehicle (financial) for that year—do not include the holding of any *associate entity debt; and
(ii) if the entity is an *inward investor (general) or *inward investor (financial) for that year—consist only of its Australian investments (within the meaning of section 820‑205 or 820‑210, as appropriate), other than the holding of any associate entity debt that is attributable to its *Australian permanent establishments;
(b) the entity had carried on the Australian business that it actually carried on during that year;
(c) the nature of the entity’s assets and liabilities (to the extent that they are attributable to the Australian business) had been as they were during that year;
(d) except as stated in paragraph (1)(b) and paragraph (e) of this subsection, the entity had carried on the Australian business in the same circumstances as what actually existed during that year;
(e) any guarantee, security or other form of credit support provided to the entity in relation to the Australian business during that year:
(i) by its *associates; or
(ii) by the use of assets of the entity that are attributable to the entity’s overseas permanent establishments;
is taken not to have been received by the entity.
Relevant factors
(3) On the basis of the factual assumptions set out in subsection (2), the following factors must be taken into account in determining whether or not an amount satisfies paragraphs (1)(a) and (b):
(a) the functions performed, the assets used, and the risks assumed, by the entity in relation to the Australian business throughout that year;
(b) the terms and conditions of the *debt capital that the entity actually had in relation to the Australian business throughout that year;
(c) the nature of, and title to, any assets of the entity attributable to the Australian business that were available to the entity throughout that year as security for its debt capital for that business;
(d) the purposes for which *schemes for debt capital had been actually entered into by the entity in relation to the Australian business throughout that year;
(e) the entity’s capacity to meet all its liabilities in relation to the Australian business (whether during that year or at any other time);
(f) the profit of the entity (within the meaning of the *accounting standards), and the return on its capital, in relation to the Australian business (whether during that year or at any other time);
(g) the debt to equity ratios of the following throughout that year:
(i) the entity;
(ii) the entity in relation to the Australian business;
(iii) each of the entity’s *associate entities that engage in commercial activities similar to the Australian business;
(h) the commercial practices adopted by independent parties dealing with each other at arm’s length in the industry in which the entity carries on the Australian business throughout that year (whether in Australia or in comparable markets elsewhere);
(i) the general state of the Australian economy throughout that year;
(j) all of the above factors existing at the time when the entity last entered into a *scheme that gave rise to an actual *debt interest attributable to the Australian business that remains *on issue throughout that year;
(k) any other factors which are specified in the regulations made for the purposes of this section, including factors that are specific to an *inward investment vehicle (general), an *inward investment vehicle (financial), an *inward investor (general) or an *inward investor (financial).
Commissioner’s power
(4) If the Commissioner considers an amount worked out by the entity under this section does not appropriately take into account the factual assumptions and the relevant factors, the Commissioner may substitute another amount that the Commissioner considers better reflects those assumptions and factors.
The amount of *debt deduction disallowed under subsection 820‑185(1) is worked out using the following formula:
where:
average debt means the average value, for the income year, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year.
debt deduction means each *debt deduction of the entity for that year.
excess debt means the amount by which the *adjusted average debt (see subsection 820‑185(3)) exceeds the entity’s *maximum allowable debt for that year.
(1) This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year, if:
(a) the entity is an *inward investing entity (non‑ADI) for that period, but is not also an *outward investing entity (non‑ADI) for all or any part of that period; and
(b) the entity’s *adjusted average debt for that period exceeds the entity’s *maximum allowable debt for that period.
Note: To determine whether an entity is an inward investing entity (non‑ADI) for a period, see subsection 820‑185(2).
(2) The entity’s
adjusted average debt for that period is the result of applying the method statement in this subsection.
Method statement
Step 1. Work out the average value, for that period, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year.
Step 2. Reduce the result of step 1 by the average value, for that period, of:
(a) if the entity is an *inward investment vehicle (general) or an *inward investment vehicle (financial) for that period—all the *associate entity debt of the entity; or
(b) if the entity is an *inward investor (general) or an *inward investor (financial) for that period—all the associate entity debt of the entity, to the extent that it is attributable to the entity’s *Australian permanent establishments.
Step 3. If the entity is a *financial entity throughout that period, add to the result of step 2 the average value, for that period, of the entity’s *zero‑capital amount, to the extent that:
(a) the zero‑capital amount is attributable to the securities loan arrangements mentioned in step 1 of the method statement in subsection 820‑942(1); and
(b) the securities loan arrangements are not *debt interests.
Step 4. Add to the result of step 3 the average value, for that period (therelevant period ), of any *debt capital of the entity that does not give rise to any *debt deductions of the entity for that or any other income year, if:
(a) the debt capital is comprised of *debt interests issued to another entity that remain *on issue; and
(b) that other entity is an *outward investing entity (non‑ADI) or *inward investing entity (non‑ADI) for a period that is, or includes, all or a part of the relevant period; and
(c) for the purposes of the application of this Division to the entities, and in relation to only that part of the period that falls within the relevant period, the entities do not use the same *valuation days and the same number of valuation days to calculate the average value of their respective debt capital.
The result of this step is the
adjusted average debt .Note: To calculate an average value for the purposes of this Division, see Subdivision 820‑G.
(2A) The entity’s *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.
(3) For the purposes of determining:
(a) the *maximum allowable debt for the period mentioned in subsection (1); and
(b) the amount of each *debt deduction to be disallowed;
sections 820‑190 to 820‑220 apply in relation to that entity and that period with the modifications set out in the following table:
1 | Sections 820‑190 to 820‑220 | A reference to an income year is taken to be a reference to that period |
3 | Section 820‑220 | A reference to subsection 820‑185(1) is taken to be a reference to subsection (1) of this section |
4 | Section 820‑220 | |
This Subdivision sets out the thin capitalisation rules that apply to an entity that is both an authorised deposit‑taking institution(an
ADI ) and an Australian entity that has certain types of overseas investments. These rules deal with the following matters:• how to work out the entity’s minimum capital amount for an income year;
• how all or a part of the debt deductions claimed by the entity may be disallowed if the minimum capital amount is not reached;
• how to apply these rules to a period that is less than an income year.
Operative provisions 820‑300 Thin capitalisation rule for outward investing entities (ADI)
820‑305 Minimum capital amount
820‑310 Safe harbour capital amount
820‑315 Arm’s length capital amount
820‑320 Worldwide capital amount
820‑325 Amount of debt deduction disallowed
820‑330 Application to part year periods
[This is the end of the Guide.]
Thin capitalisation rule
(1) This subsection disallows all or a part of each *debt deduction of an entity for an income year (to the extent that it is not attributable to an *overseas permanent establishment of the entity) if, for that year:
(a) the entity is an *outward investing entity (ADI) (see subsection (2)); and
(b) the entity’s *adjusted average equity capital (see subsection (3)) is less than the entity’s *minimum capital amount (see section 820‑305).
Note 1: This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $250,000 or less, see section 820‑35.
Note 2: To work out the amount to be disallowed, see section 820‑325.
Note 3: For the rules that apply to an entity that is an outward investing entity (ADI) for only part of an income year, see section 820‑330 in conjunction with subsection (2) of this section.
Note 4: A resident TC group may be an outward investing entity (ADI) to which this Subdivision applies, see Subdivision 820‑F.
Outward investing entity (ADI)
(2) The entity is an
outward investing entity (ADI) for a period that is all or a part of an income year if, and only if, throughout that period, the entity is an *ADI to which at least one of the following paragraphs applies:
(a) the entity is an *Australian controller of at least one *Australian controlled foreign entity (not necessarily the same Australian controlled foreign entity throughout that period);
(b) the entity is an *Australian entity that carries on a *business at or through at least one *overseas permanent establishment (not necessarily the same permanent establishment throughout that period);
(c) the entity is:
(i) an Australian entity; and
(ii) an *associate entity of another entity that is an *outward investing entity (non‑ADI) or an *outward investing entity (ADI) for that period.
Note: To determine whether an entity is an Australian controller of an Australian controlled foreign entity, see Subdivision 820‑H.
Adjusted average equity capital
(3) The entity’s
adjusted average equity capital for an income year is:
(a) the average value, for that year, of all the *equity capital of the entity (other than equity capital attributable to its *overseas permanent establishments); minus
(b) the average value, for that year, of all the *controlled foreign entity equity of the entity (other than controlled foreign entity equity attributable to its overseas permanent establishments).
Note: To calculate an average value for the purposes of this Division, see Subdivision 820‑G.
The entity’s
minimum capital amount for an income year is the least of the following amounts:
(a) the *safe harbour capital amount;
(b) the *arm’s length capital amount;
(c) the *worldwide capital amount.
Note: The entity cannot use the worldwide capital amount if the entity is also a foreign controlled Australian entity throughout that year, see section 820‑320.
The
safe harbour capital 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 *risk‑weighted assets of the entity, other than risk‑weighted assets attributable to any of the following:
(a) the entity’s *overseas permanent establishments;
(b) assets comprised by the *controlled foreign entity equity of the entity (other than controlled foreign entity equity attributable to the entity’s overseas permanent establishments);
(c) assets for which *prudential capital deductions must be made by the entity (other than prudential capital deductions attributable to the entity’s overseas permanent establishments).
Step 2. Multiply the result of step 1 by 4%.
Step 3. Add to the result of step 2 the average value, for that year, of all the *tier 1 prudential capital deductions for the entity (to the extent that they are not attributable to any of the entity’s *overseas permanent establishments or any *Australian controlled foreign entities of which the entity is an *Australian controller). The result of this step is thesafe harbour capital amount . Example: The Southern Cross Bank is an Australian bank that carries on its banking business through its overseas permanent establishments and through foreign entities that it controls. For the income year, its average value of risk‑weighted assets is $150 million (having discounted those risk‑weighted assets that are excluded by step 1) and the average value of its relevant tier 1 prudential capital deductions is $2 million. Multiplying $150 million by 4% equals $6 million, which is the result of step 2. Adding $2 million to $6 million equals $8 million, which is the safe harbour capital amount.
(1) The
arm’s length capital amount is a notional amount that, having regard to:
(a) the factual assumptions set out in subsection (2); and
(b) the relevant factors mentioned in subsection (3);
would represent the minimum amount of *equity capital that the entity would reasonably be expected to have in carrying on the Australian business mentioned in subsection (2) throughout the income year if, throughout that year:
(c) the part of the entity carrying on that business had operated as if it were a separate entity; and
(d) that separate entity had been dealing at arm’s length with:
(i) the other part of the entity; and
(ii) all the *Australian controlled foreign entities of which the entity is an *Australian controller.
Note: The entity must keep records in accordance with section 820‑980 if the entity works out an amount under this section.
Factual assumptions
(2) Irrespective of what actually happened during that year, the following assumptions must be made in working out that minimum amount:
(a) the entity’s commercial activities in connection with Australia (the
Australian business ) during that year do not include:(i) any *business carried on by the entity at or through its *overseas permanent establishments; or
(ii) the holding of any *controlled foreign entity equity;
(b) the entity had carried on the Australian business that it actually carried on during that year;
(c) the nature of the entity’s assets and liabilities (to the extent that they are attributable to the Australian business) had been as they were during that year;
(d) except as mentioned in subsection (1), the entity had carried on the Australian business in the same circumstances as what actually existed during that year.
Relevant factors
(3) On the basis of the factual assumptions set out in subsection (2), the following factors must be taken into account in determining that minimum amount:
(a) the functions performed, the assets used, and the risks assumed, throughout that year, by:
(i) the entity; and
(ii) the entity in relation to the Australian business;
(b) the credit rating of the entity throughout that year, including the effect of that credit rating on all of the following:
(i) the entity’s ability to borrow in relation to the Australian business;
(ii) the interest rate at which the entity borrowed in relation to that business;
(iii) the entity’s gross profit margin in relation to that business;
(c) the capital ratios of the following throughout that year:
(i) the entity;
(ii) the entity in relation to the Australian business;
(iii) each of the entity’s *associate entities that engage in commercial activities similar to the Australian business;
(d) the purposes for which *schemes for *debt capital and for *equity capital had been actually entered into, throughout that year, by:
(i) the entity; and
(ii) the entity in relation to the Australian business;
(e) the profit (within the meaning of the *accounting standards), and the return on capital, whether during that year or at any other time, of:
(i) the entity; and
(ii) the entity in relation to the Australian business;
(f) the commercial practices adopted by independent parties dealing with each other at arm’s length in the industry in which the entity carries on the Australian business throughout that year (whether in Australia or in comparable markets elsewhere);
(g) the way in which the entity financed its business (other than the Australian business) throughout that year;
(h) the general state of the Australian economy throughout that year;
(i) any other factors which are specified in the regulations made for the purposes of this section.
Commissioner’s power
(4) If the Commissioner considers an amount worked out by the entity under this section does not appropriately take into account the factual assumptions and the relevant factors, the Commissioner may substitute another amount that the Commissioner considers better reflects those assumptions and factors.
(1) This section only applies if the entity is not also a *foreign controlled Australian entity throughout the income year.
(2) The
worldwide capital 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 *risk‑weighted assets of the entity, other than risk‑weighted assets attributable to any of the following:
(a) the entity’s *overseas permanent establishments;
(b) assets comprised by the *controlled foreign entity equity of the entity;
(c) assets for which *prudential capital deductions must be made by the entity.
Step 2. Multiply the entity’s worldwide group capital ratio for that year (see subsection (3)) by 8/10.
Step 3. Multiply the result of step 1 by the result of step 2.
Step 4. Add to the result of step 3 the average value, for that year, of all the *tier 1 prudential capital deductions for the entity (to the extent that they are not attributable to any of the entity’s *overseas permanent establishments or to any *Australian controlled foreign entities of which the entity is an *Australian controller). The result of this step is theworldwide capital amount . Example: Southern Cross Bank has an average value of risk‑weighted assets of $150 million (having discounted those risk‑weighted assets that are excluded by step 1) and the average value of its relevant tier 1 prudential capital deductions is $2 million. The entity’s worldwide group capital ratio is 0.0875. Multiplying that ratio by 8/10 equals 0.07, which is the result of step 2. Multiplying $150 million by 0.07 equals $10.5 million, which is the result of step 3. Adding that amount to the average value of the relevant tier 1 prudential capital deductions equals $12.5 million, which is the worldwide capital amount.
Worldwide group capital ratio
(3) The entity’s
worldwide group capital ratio for the income year 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 the tier 1 capital (within the meaning of the *prudential standards) of the consolidated group of which the entity is a member (within the meaning of those standards) in accordance with those standards.
Step 2. Divide the result of step 1 by the average value, for that year, of the *risk‑weighted assets of that group in accordance with the *prudential standards. The result is theworldwide group capital ratio .Example: For the Southern Cross Bank, the average value of the tier 1 capital for the relevant consolidated group is $14 million. Dividing $14 million by the group’s risk weighted assets of $160 million equals 0.0875, which is the worldwide group capital ratio.
The amount of *debt deduction disallowed under subsection 820‑300(1) is worked out using the following formula:
where:
average debt means the average value, for the income year, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year (other than any debt capital that is attributable to any of the entity’s *overseas permanent establishments).
Insert:
| Division 820 |
Insert:
An *Australian entity can deduct an amount of loss or outgoing from its assessable income for an income year if:
(a) the amount is incurred by the entity in deriving income from a foreign source; and
(b) the income is exempt income under section 23AI, 23AJ or 23AK of the
Income Tax Assessment Act 1936 ; and(c) the amount is a cost in relation to a *debt interest issued by the entity that is covered by paragraph (1)(a) of the definition of
debt deduction .17
Subsection 995‑1(1) (definition of accounting standards ) Omit “Corporations Law”, substitute “
Corporations Act 2001 ”.18
Subsection 995‑1(1) (paragraph (a) of the definition of financial entity ) Omit “
Financial Corporations Act 1974 ”, substitute “Financial Sector (Collection of Data) Act 2001 ”.19
Subsection 995‑1(1) (paragraph (c) of the definition of financial entity ) Repeal the paragraph, substitute:
(c) an entity that:
(i) is a financial services licensee within the meaning of the
Corporations Act 2001 whose licence covers dealings in financial products mentioned in paragraphs 764A(1)(a), (b) and (j) of that Act; and
(ii) carries on a *business of dealing in securities; and
(iii) does not carry on that business predominantly for the purposes of dealing in securities with, or on behalf of, the entity’s *associates.
Add:
Section 25‑90 (which is about deductions relating to foreign exempt income) of the
Income Tax Assessment Act 1997 applies to an amount incurred in an income year that begins on or after 1 July 2001.
Omit “
Chapter 6 ”, substitute “Chapter 5 ”.
Insert:
[The next Division is Division 820.]
820‑10 Application of Division 820 of the
Income Tax Assessment Act 1997 820-12 Application of Division 974 of the
Income Tax Assessment Act 1997 for the purposes of Division 820 of that Act820‑15 Transitional provision—application of Divisions 16F and 16G of Part III of the
Income Tax Assessment Act 1936 820‑20 Transitional provision—application of section 389 of the
Income Tax Assessment Act 1936 820‑25 Transitional provision—average value of a matter for the first income year
820‑30 Transitional provision—average value of a matter for resident TC group that includes an ADI or an Australian permanent establishment of a foreign bank
820‑35 Transitional provision—transitional debt interests
820‑40 Transitional provision—transitional equity interests
(1) Subject to subsection (2), Division 820 of the
Income Tax Assessment Act 1997 applies in relation to an income year that begins on or after 1 July 2001.(2) Subdivision 820‑L of that Act, to the extent that it relates to the requirements under section 820‑960 of that Act, applies only in relation to an income year that begins on or after 1 July 2002.
(1) Division 974 of the
Income Tax Assessment Act 1997 applies for the purposes of determining whether, for the purposes of Division 820 of that Act, an interest is a debt interest or an equity interest at any time on or after 1 July 2001 (whether or not the debt and equity test amendments apply to transactions in relation to that interest at that time).(2) In this section,
debt and equity test amendments has the same meaning as in Part 4 of Schedule 1 to theNew Business Tax System (Debt and Equity) Act 2001 .
If Division 16F or 16G of Part III of the
Income Tax Assessment Act 1936 would have applied to an entity for a period that is all or a part of an income year that begins before 1 July 2001, then, despite the repeal of that Division, it continues to apply to that entity for that period.
If Division 16F or 16G of Part III of the
Income Tax Assessment Act 1936 continues to apply to an entity for a period under section 820‑15, section 389 of that Act applies to that entity for that period as if that section has not been amended by theNew Business Tax System (Thin Capitalisation) Act 2001 .
(1) If:
(a) Division 820 of the
Income Tax Assessment Act 1997 applies to an entity for a period that is all or a part of an income year; and(b) that income year begins before 1 July 2002 and ends before 30 June 2003;
the entity may, for the purposes of that application, choose to use the value of a particular matter as at the end of that period as if it were the average value of that matter for that period.
Note: This means that the entity may, for that period, apply subsection (1) instead of calculating an average value in accordance with Subdivision 820‑G of the
Income Tax Assessment Act 1997 .
(2) However, an entity making that choice must apply subsection (1) throughout that period for every matter for which an average value is required to be calculated for the purposes of that Division’s application to that entity.
(3) This section alters the effect of that Division accordingly.
(1) This section affects how the average value of a matter is determined for the purposes of Division 820 of the
Income Tax Assessment Act 1997 , as it applies to a resident TC group for an income year beginning before 1 July 2002 and ending before 30 June 2003.(2) If:
(a) the group is an outward investing entity (ADI) for that income year, or section 820‑565 of that Act applies Subdivision 820‑D of that Act to the group for that income year as if it were an outward investing entity (ADI); and
(b) apart from this section, a day on which the group did not include at least one entity that is an ADI would be a measurement day for the group under section 820‑645 of that Act;
that day is treated as not being such a measurement day.
(3) If:
(a) section 820‑575 of that Act applies Subdivision 820‑E of that Act to the group for that income year as if it were an inward investing entity (ADI); and
(b) apart from this section, a day on which the group did not include at least one Australian permanent establishment through which a foreign bank carries on its banking business in Australia would be a measurement day for the group under section 820‑645 of that Act;
that day is treated as not being such a measurement day.
(1) This section applies to an interest for the period starting from 1 July 2001 and ending immediately before 1 July 2004 (the
transitional period ) if:
(a) the interest was issued before 1 July 2001; and
(b) disregarding the debt and equity test amendments (within the meaning of Part 4 of Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001 ), the interest would be:(i) an asset of an entity comprised by equity issued by another entity; or
(ii) equity issued by an entity to another entity; and
(c) the interest is a debt interest that remains on issue.
What happens if there is no election
(2) If:
(a) the issuer of the interest does not elect under paragraph 118(6)(b) of Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001 to have that paragraph apply to the interest; and(b) at any time during the transitional period, Division 820 of the
Income Tax Assessment Act 1997 applies to an entity that is the issuer or the holder of the interest;the interest must be treated as an equity interest for the purposes of applying that Division to that entity at that time.
What happens if there is an election
(3) Subsections (4) to (6) apply if the issuer of the interest elects under paragraph 118(6)(b) of Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001 to have that paragraph apply to the interest.(4) For the purposes of applying Division 820 of the
Income Tax Assessment Act 1997 at any time during the transitional period to an entity that is the issuer of the interest at that time, the interest must be treated as a debt interest at that time.(5) Except as provided by subsection (6), for the purposes of applying that Division at any time during the transitional period to an entity that is the holder of the interest at that time, the interest must be treated as an equity interest at that time.
(6) Despite subsection (5), the interest must be treated as a debt interest at that time for the purposes of applying that Division to that holder at that time if:
(a) apart from this section, the interest would be included in the associate entity debt of that holder at that time for those purposes; and
(b) at that time, the issuer of the interest is not an Australian controlled foreign entity for which that holder is an Australian controller.
(1) This section applies to an interest for the period starting from 1 July 2001 and ending immediately before 1 July 2004 (the
transitional period ) if:
(a) the interest was issued before 1 July 2001; and
(b) disregarding the debt and equity test amendments (within the meaning of Part 4 of Schedule 1 to the
New Business Tax System (Debt and Equity) Act 2001 ), the interest would be:(i) an asset of an entity comprised by a debt owed to the entity by the issuer of the interest; or
(ii) a debt owed by the issuer of the interest to another entity; and
(c) the interest is an equity interest.
For the issuer
(2) The interest must be treated as an equity interest at any time during the transitional period for the purposes of applying Division 820 of the
Income Tax Assessment Act 1997 to an entity that is the issuer of that interest at that time.
For the holder
(3) Except as provided by subsection (4), the interest must be treated as a debt interest at any time during the transitional period for the purposes of applying that Division to an entity that is the holder of the interest at that time.
(4) Despite subsection (3), that interest must be treated as an equity interest at that time for the purposes of applying that Division to that holder at that time if:
(a) apart from this section, the interest would be included in the associate entity equity of that holder at that time for those purposes; and
(b) at that time, the issuer of the interest is not an Australian controlled foreign entity for which that holder is an Australian controller.
23 Application—section 128F of the Income Tax Assessment Act 1936 The amendment of section 128F of the
Income Tax Assessment Act 1936 made by this Schedule applies only in relation to a debenture that is issued on or after 1 July 2001.23A Application—section 160AF of the Income Tax Assessment Act 1936 The amendments of section 160AF of the
Income Tax Assessment Act 1936 made by this Schedule apply in relation to assessable income of a year of income that begins on or after 1 July 2001.24 Application—section 160AFD of the Income Tax Assessment Act 1936 The amendment of section 160AFD of the
Income Tax Assessment Act 1936 made by this Schedule applies to a class of assessable foreign income of a year of income that begins on or after 1 July 2001.25 Application—section 160ZZZJ and related provisions of the Income Tax Assessment Act 1936 (1) The amendments of sections 160ZZW and 160ZZZJ of the
Income Tax Assessment Act 1936 made by this Schedule applies only to an amount of interest taken under section 160ZZZA of that Act to be paid to, and derived by, a foreign bank during an income year that begins on or after 1 July 2001.(2) Despite the repeals of sections 160ZZZB and 160ZZZD of the
Income Tax Assessment Act 1936 by this Schedule, those sections continue to apply in relation to an amount of interest taken under section 160ZZZA of that Act to be paid to, and derived by, a foreign bank during an income year that began before 1 July 2001.26 Application—section 262A of the Income Tax Assessment Act 1936 The amendment of section 262A of the
Income Tax Assessment Act 1936 made by this Schedule applies:(a) for records required to be kept under section 820‑960—in relation to an income year that begins on or after 1 July 2002; and
(b) for records required to be kept under section 820‑980—in relation to an income year that begins on or after 1 July 2001.
Repeal the link note, substitute:
960‑115 Meaning of
corporate tax entity 960‑120 Meaning of
distribution
An entity is a
corporate tax entity at a particular time if:
(a) the entity is a company at that time; or
(b) the entity is a *corporate limited partnership in relation to the income year in which that time occurs; or
(c) the entity is a *corporate unit trust in relation to the income year in which that time occurs; or
(d) the entity is a *public trading trust in relation to the income year in which that time occurs.
(1) What constitutes a
distribution by various *corporate tax entities is set out in the following table:
1 | company | a dividend, or something that is taken to be a dividend, under this Act |
2 | *corporate limited partnership |
|
3 | *corporate unit trust | a unit trust dividend, as defined in subsection 102D(1) of the |
4 | *public trading trust | a unit trust dividend, as defined in section 102M of the |
(2) A *corporate tax entity
makes a distribution in the form of a dividend on the day on which the dividend is paid, or taken to have been paid.
Insert:
accounting standards has the same meaning as in the Corporations Law.
Insert:
adjusted average debt has the meaning given by sections 820‑85, 820‑120, 820‑185 and 820‑225.
Insert:
adjusted average equity capital has the meaning given by sections 820‑300, 820‑330 and 820‑562.
Insert:
adjusted on‑lent amount has the meaning given by sections 820‑100, 820‑200 and 820‑210.
Insert:
allowable OB deduction has the meaning given by subsection 121EF(2) of theIncome Tax Assessment Act 1936 .
Insert:
arm’s length capital amount :
(a) for an *outward investing entity (ADI)—has the meaning given by section 820‑315; and
(b) for an *inward investing entity (ADI)—has the meaning given by section 820‑410.
Insert:
arm’s length debt amount :
(a) for an *outward investing entity (non‑ADI)—has the meaning given by section 820‑105; and
(b) for an *inward investing entity (non‑ADI)—has the meaning given by section 820‑215.
Insert:
associate entity has the meaning given by section 820‑905.
Insert:
associate entity debt has the meaning given by section 820‑910.
Insert:
associate entity equity has the meaning given by section 820‑915.
Insert:
associate entity excess amount has the meaning given by section 820‑920.
Insert:
associate interest has the meaning given by section 820‑905.
Insert:
Australian controlled foreign entity has the meaning given by section 820‑745.
Insert:
Australian controller :
(a) of a *controlled foreign company mentioned in paragraph 820‑745(a)—has the meaning given by section 820‑750; and
(b) of a *controlled foreign trust—has the meaning given by section 820‑755; and
(c) of a *controlled foreign corporate limited partnership—has the meaning given by section 820‑760.
Insert:
Australian entity has the same meaning as in Part X of theIncome Tax Assessment Act 1936.
Insert:
Australian permanent establishment , of an entity, means a *permanent establishment of the entity that is in Australia .
Insert:
Australian trust has the same meaning as in Part X of theIncome Tax Assessment Act 1936.
Insert:
average equity capital has the meaning given by sections 820‑395, 820‑420 and 820‑575.
Insert:
controlled foreign company has the same meaning as in Part X of theIncome Tax Assessment Act 1936.
Insert:
controlled foreign corporate limited partnership has the meaning given by section 820‑760.
Insert:
controlled foreign entity debt , of an entity and at a particular time, means the total amount of *debt interests *on issue at that time that have been issued to the entity by any *Australian controlled foreign entities of which it is an *Australian controller at that time.
Insert:
controlled foreign entity equity ,of an entity and at a particular time, means the total value of *equity interests that the entity holds, at that time, in any *Australian controlled foreign entities of which it is an *Australian controller at that time.
Insert:
controlled foreign trust has the same meaning as in Part X of theIncome Tax Assessment Act 1936.
Insert:
corporate tax entity has the meaning given by section 960‑115.
Insert:
debt capital , of an entity and at a particular time, means any *debt interests issued by the entity that are still *on issue at that time.
Insert:
debt deduction has the meaning given by section 820‑40.
Insert:
distribution ,by a *corporate tax entity, has the meaning given by section 960‑120.
Insert:
equity capital , of an entity and at a particular time, means:
(a) if the entity is a company that is not an *outward investing entity (ADI) at that time:
(i) the total value of the entity’s *paid‑up share capital, retained earnings, general reserves and asset revaluation reserves as at that time; minus
(ii) the value of the entity’s *debt capital that is part of the entity’s paid‑up share capital at that time; or
(b) if the entity is a company that is an outward investing entity (ADI) at that time:
(i) the total value of all the entity’s tier 1 capital (within the meaning of the *prudential standards) as at that time; minus
(ii) the value of the entity’s debt capital that is part of the entity’s tier 1 capital at that time; or
(c) if the entity is a trust or partnership at that time:
(i) the total value of the entity’s capital and reserves as at that time; minus
(ii) the value of the entity’s debt capital that is part of the entity’s capital at that time
.
Insert:
equity interest in an entity that is a trust or partnership has the meaning given by section 820‑930.
Insert:
financial entity , at a particular time, means an entity other than an *ADI that is any of the following at that time:
(a) a registered corporation under the
Financial Corporations Act 1974 ;(b) a *securitisation vehicle;
(c) an entity that:
(i) holds a dealer’s licence granted under Part 7.3 of the Corporations Law; and
(ii)
carries on a *business of dealing in securities; and
(iii) does not carry on that business predominantly for the purposes of dealing in securities with, or on behalf of, the entity’s *associates.
Insert:
foreign bank means an *ADI that is a *foreign entity.
Insert:
foreign controlled Australian company has the meaning given by section 820‑785.
Insert:
foreign controlled Australian entity has the meaning given by section 820‑780.
Insert:
foreign controlled Australian partnership has the meaning given by section 820‑795.
Insert:
foreign controlled Australian trust has the meaning given by section 820‑790.
Insert:
foreign entity means an entity that is not an *Australian entity.
Insert:
general partner means a partner of a *corporate limited partnership whose liability in relation to the partnership is not limited.
Insert:
inward investing entity (ADI) has the meaning given by section 820‑395.
Insert:
inward investing entity (non‑ADI) has the meaning given by sections 820‑185 and 820‑550.
Insert:
inward investment vehicle (financial) has the meaning given by sections 820‑185 and 820‑550.
Insert:
inward investment vehicle (general) has the meaning given by sections 820‑185 and 820‑550.
Insert:
inward investor (financial) has the meaning given by section 820‑185.
Insert:
inward investor (general) has the meaning given by section 820‑185.
Insert:
maximum allowable debt :
(a) for an *outward investing entity (non‑ADI)—has the meaning given by section 820‑90 (or that section as applied by section 820‑120); and
(b) for an *inward investing entity (non‑ADI) covered by paragraph 820‑185(1)(a) (or 820‑225(1)(a))—has the meaning given by section 820‑190 (or that section as applied by section 820‑225).
Insert:
maximum TC group has the meaning given by section 820‑500.
Insert:
minimum capital amount :
(a) for an *outward investing entity (ADI)—has the meaning given by section 820‑305 (or that section as applied by section 820‑330); and
(b) for an *inward investing entity (ADI)—has the meaning given by section 820‑400 (or that section as applied by section 820‑420).
Insert:
non‑debt liabilities , of an entity and at a particular time, means liabilities that the entity has at that time, other than:
(a) any *debt capital of the entity; or
(b) any *equity interest in the entity; or
(c) a provision for a *distribution of profit if the entity is a *corporate tax entity; or
(d) any liability of the entity under a securities loan arrangement if, as at that time, the entity:
(i) has received amounts for the sale of securities (other than any fees associated with the sale) under the arrangement; and
(ii) has not repurchased the securities under the arrangement.
Insert:
OB activity has the meaning given by section 121D of theIncome Tax Assessment Act 1936 .
Insert:
on‑lent amount , of an entity and at a particular time, means the value, as at that time, of:
(a) all the assets of the entity that are comprised by *debt interests issued by other entities; and
(b) all the assets of the entity that are comprised by leases for the hire of goods that are not covered by paragraph (a) and in relation to which the following subparagraphs are satisfied:
(i) each of the leases is for a term of 6 months or more;
(ii) the leases are part of the *business of hiring goods that the entity carries on;
(iii) the entity’s business of hiring goods is not carried on predominantly for the purposes of hiring goods to the entity’s *associates; and
(c) all the securities that were held by the entity that:
(i) have been sold by the entity under a reciprocal purchase agreement (otherwise known as a repurchase agreement), sell‑buyback arrangement or securities loan arrangement; but
(ii) have not yet been repurchased by the entity under the agreement or arrangement.
Insert:
outward investing entity (ADI) has the meaning given by sections 820‑300 and 820‑550.
Insert:
outward investing entity (non‑ADI) has the meaning given by sections 820‑85 and 820‑550.
Insert:
outward investor (financial) has the meaning given by sections 820‑85 and 820‑550.
Insert:
outward investor (general) has the meaning given by sections 820‑85 and 820‑550.
Insert:
overseas permanent establishment , of an entity, means a *permanent establishment of the entity that is in a country other than Australia .
Insert:
prudential capital deduction , for an entity and at a particular time, means the total amounts that must be deducted in calculating the following in accordance with the *prudential standards as in force at that time:
(a) the eligible tier 1 capital of the entity at that time (within the meaning of those standards);
(b) the sum of the eligible tier 1 and tier 2 capital of the entity at that time (within the meaning of those standards).
Insert:
registered scheme has the same meaning as in theCorporations Act 2001 .
Insert:
responsible entity , of a *registered scheme, has the same meaning as in theCorporations Act 2001 .
Insert:
risk‑weighted assets , of an entity and at a particular time, means the sum of the entity’s risk exposures that the entity has at that time, as is determined in accordance with:
(a) if the entity is an *Australian entity that is not a *foreign controlled Australian entity—the *prudential standards; or
(b) in any other case—either of the following:
(i) the prudential standards;
(ii) the prudential standards determined by the prudential regulator in the country of which the entity, or the *foreign bank that has *TC control interests of at least 40% in the entity, is a resident.
Insert:
resident TC group for an income year means 2 or more entities that, because of a choice under section 820‑500, are to be treated as a resident TC group for that income year.
Insert:
safe harbour capital amount :
(a) for an *outward investing entity (ADI)—has the meaning given by section 820‑310; and
(b) for an *inward investing entity (ADI)—has the meaning given by section 820‑405; and
(c) for a *resident TC group to which section 820‑575 applies—has the meaning given by that section.
Insert:
safe harbour debt amount :
(a) for an *outward investor (general)—has the meaning given by section 820‑95; and
(b) for an *outward investor (financial)—has the meaning given by section 820‑100; and
(c) for an *inward investment vehicle (general)—has the meaning given by section 820‑195; and
(d) for an *inward investment vehicle (financial)—has the meaning given by section 820‑200; and
(e) for an *inward investor (general)—has the meaning given by section 820‑205; and
(f) for an *inward investor (financial)—has the meaning given by section 820‑210.
Insert:
securitised asset has the meaning given by section 820‑942.
Insert:
securitisation vehicle has the meaning given by section 820‑942.
Insert:
subordinated debt interest means a *debt interest issued to:
(a) an unsecured creditor; or
(b) a secured creditor who, in the event of the liquidation of the entity issuing the interest, can only make a claim regarding that interest after the claims of other secured creditors regarding other debt interests issued by that entity have been met.
Insert:
TC control interest has the meaning given by section 820‑815 (which is affected by sections 820‑820 to 820‑835).
Insert:
TC control tracing interest has the meaning given by section 820‑875.
Insert:
TC direct control interest :
(a) for a company—has the meaning given by section 820‑855; and
(b) for a trust—has the meaning given by section 820‑860; and
(c) for a partnership—has the meaning given by section 820‑865.
Insert:
TC indirect control interest has the meaning given by section 820‑870.
Insert:
tier 1 prudential capital deduction , for an entity and at a particular time, means the amounts that must be deducted in the calculation of the eligible tier 1 capital (within the meaning of the *prudential standards) of the entity at that time in accordance with the prudential standards as in force at that time.
Insert:
top entity of a *maximum TC group has the meaning given by section 820‑500.
Insert:
total debt amount has the meaning given by sections 820‑100, 820‑200 and 820‑210.
Insert:
valuation days , in relation to the calculation of the average value of a matter for an entity under Division 820, means the particular days at which the value of that matter is measured under Subdivision 820‑G for the purposes of that calculation.
Insert:
worldwide capital amount , for an *outward investing entity (ADI), has the meaning given by section 820‑320.
Insert:
worldwide debt , of an entity and at a particular time, means the total of the following amounts:
(a) all the *debt interests issued by the entity:
(i) to entities other than any *Australian controlled foreign entities (the
controlled entities ) of which the entity is an *Australian controller at that time; and
(ii) that are still *on issue at that time;
(b) all the debt interests issued by the controlled entities:
(i) to entities other than the entity or other controlled entities; and
(ii) that are still *on issue at that time.
Insert:
worldwide equity , of an entity and at a particular time, means the total of the following amounts:
(a) all the *equity capital of the entity as at that time, other than *paid‑up share capital of the entity held by *Australian controlled foreign entities (the
controlled entities ) of which the entity is an *Australian controller at that time;(b) all the equity capital of the controlled entities as at that time, other than paid‑up share capital of the controlled entities held by:
(i) the entity; or
(ii) other controlled entities.
Insert:
worldwide gearing debt amount , for an *outward investing entity (non‑ADI), has the meaning given by section 820‑110.
Insert:
zero‑capital amount has the meaning given by section 820‑942.
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