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This is a Bill, not an Act. For current law, see the Acts databases.
1998-1999-2000-2001
The
Parliament of the
Commonwealth of
Australia
HOUSE OF
REPRESENTATIVES
Presented and read a first
time
New Business
Tax System (Thin Capitalisation) Bill
2001
No. ,
2001
(Treasury)
A Bill
for an Act to implement the New Business Tax System in relation to thin
capitalisation, and for related purposes
Contents
Part 1—New thin capitalisation
rules 3
Income Tax Assessment Act
1997 3
Part 2—Consequential and other
amendments 115
Income Tax Assessment Act
1936 115
Income Tax Assessment Act
1997 117
Income Tax (Transitional Provisions) Act
1997 118
Part 3—Application
provisions 123
Income Tax Assessment Act
1997 124
A Bill for an Act to implement the New Business Tax
System in relation to thin capitalisation, and for related
purposes
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this Act is amended or repealed as set out in the applicable items in the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.
Part 1—New
thin capitalisation rules
Income Tax Assessment Act
1997
1 Chapter 4
Repeal the Chapter, substitute:
[The next Division is Division 820.]
Table of Subdivisions
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 (an ADI)—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”).
Table of sections
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.
|
Map of Division |
||
|---|---|---|
|
Item |
This Subdivision: |
sets out: |
|
1 |
Subdivision 820-B or 820-C |
(a) the meaning of maximum allowable debt for the Subdivision; and |
|
2 |
Subdivision 820-D or 820-E |
(a) the meaning of minimum capital amount for the Subdivision; and |
|
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.]
Table of sections
820-30 Object of Division
820-35 Application—$250,000 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.
(1) For the purposes of this Division, 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 associated with hedging or managing the financial risk in
respect of the debt interest;
(b) losses in respect of an amount that:
(i) is owed by the entity; but
(ii) is not covered by subparagraph (1)(a)(i) or (ii);
(c) salary or wages;
(d) rental expenses;
(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.
Table of sections
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).
|
Outward investing entity (non-ADI) |
|||
|---|---|---|---|
|
Item |
If: |
and: |
then: |
|
1 |
the entity (the relevant entity) is one or both of the
following throughout a period that is all or a part of an income year: |
the relevant entity is not a *financial
entity, nor an *ADI, at any time during that
period |
the relevant entity is an outward investor (general) for that
period |
|
2 |
the entity (the relevant entity) satisfies this column in
item 1 |
the relevant entity is a *financial entity
throughout that period |
the relevant entity is an outward investor (financial) for
that period |
|
3 |
(a) the entity (the relevant entity) is an
*Australian entity throughout a period that is
all or a part of an income year; and |
the relevant entity is not a *financial
entity, nor an *ADI, at any time during that
period |
the relevant entity is an outward investor (general) for that
period |
|
4 |
the entity (the relevant entity) and another Australian
entity satisfy this column in item 3 |
the relevant entity is a *financial entity
throughout that period |
the relevant entity is an outward investor (financial) for
that period |
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, of all the
*debt capital of the entity that gives rise to
its *debt deductions for that year.
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 any *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 *controlled foreign entity
debt of the entity. The result 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 the safe 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 the total 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 (the average
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 the adjusted 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 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 that
year.
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 the worldwide 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 the worldwide 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 its *debt deductions for that 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
its *debt deductions for that year, to the
extent that the debt capital gives rise to debt deductions that are amounts
incurred by the entity during that period.
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. The result 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 that
period; 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:
|
Modifications of sections 820-90 to 820-115 |
||
|---|---|---|
|
Item |
Provisions |
Modifications |
|
1 |
Sections 820-90 to 820-115 |
A reference to an income year is taken to be a reference to that
period |
|
2 |
Subparagraph 820-105(1)(a)(ii) |
The reference to *debt deductions for the
income year is taken to be a reference to debt deductions that would be amounts
incurred by the entity during 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 |
adjusted average debt is taken to have the meaning given by
subsection (2) of this section average debt is taken to be the average value referred to in
step 1 of the method statement in subsection (2) of this section |
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.
Table of sections
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).
|
Inward investing entity (non-ADI) |
|||
|---|---|---|---|
|
Item |
If the entity is a: |
and the entity: |
the entity is an: |
|
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 |
inward investment vehicle (general) for 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 |
inward investment vehicle (financial) for 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 |
inward investor (general) for 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 |
inward investor (financial) for 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:
(a) the average value, for that year, of all the
*debt capital of the entity that gives rise to
its *debt deductions for that year;
minus
(b) whichever of the following is applicable:
(i) if the entity is an *inward
investment vehicle (general) or an *inward
investment vehicle (financial) for that year—the average value, for that
year, of all the *associate entity debt of the
entity; or
(ii) if the entity is an *inward investor
(general) or an *inward investor (financial)
for that year—the average value, for that year, of all the
*associate entity debt of the entity (to the
extent that it is attributable to the entity’s
*Australian permanent
establishments).
The entity’s *adjusted average debt
does not exceed its *maximum allowable debt if
the adjusted average debt is nil or a negative amount.
Note: To calculate an average value for the purposes of this
Division, see Subdivision 820-G.
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 the safe harbour debt
amount.
Example: ALWZ Ltd, a company that is an Australian entity,
has an average value of assets of $100 million.
The average values of its 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 the total debt
amount.
Example: KJW Finance Pty Ltd, a company that is an
Australian entity, has an average value of assets of $120
million.
The average values of its 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 (the average
on-lent amount) which is the average value, for that year, of the
entity’s *on-lent amount. If the result
of this step is a negative amount, it is taken to be nil.
Step 5. Multiply the result of step 4 by
3/4.
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 the adjusted on-lent
amount.
Example: KJW Finance Pty Ltd, a company that is an
Australian entity, has an average value of assets of $120
million.
The average values of its 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 (the Australian
investments):
(a) assets that are attributable to the entity’s
*Australian permanent establishments;
(b) other assets that are held for the purposes of producing the
entity’s assessable income.
Step 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 the safe harbour debt
amount.
Example: RJ Corporation is a company that is not an
Australian entity. The average value of its Australian investments is $100
million.
The average value of its relevant 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 (the Australian
investments):
(a) assets that are attributable to the entity’s
*Australian permanent establishments;
(b) other assets that are held for the purposes of producing the
entity’s assessable income.
Step 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.
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 the total debt
amount.
Example: FXS Financial SA is a company that is not an
Australian entity. The average value of its Australian investments is $120
million.
The average value of its relevant 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 (the Australian
investments):
(a) assets that are attributable to the entity’s
*Australian permanent establishments;
(b) other assets that are held for the purposes of producing the
entity’s assessable income.
Step 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 (the average
on-lent amount) which is the average value, for that year, of the
*on-lent amount of the entity (to the extent
that it is the value of all or a part of the Australian investments). If the
result of this step is a negative amount, it is taken to be nil.
Step 5. Multiply the result of step 4 by
3/4.
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 the adjusted on-lent
amount.
Example: FXS Financial SA is a company that is not an
Australian entity. The average value of its Australian investments is $120
million.
The average value of its relevant 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 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 that
year.
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 its *debt deductions for that
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:
(a) the average value, for that period, of all the
*debt capital of the entity that gives rise to
its *debt deductions for that year that are
amounts incurred by the entity during that period; minus
(b) whichever of the following is applicable:
(i) if the entity is an *inward
investment vehicle (general) or an *inward
investment vehicle (financial) for that period—the average value, for that
period, of all the *associate entity debt of
the entity; or
(ii) if the entity is an *inward investor
(general) or an *inward investor (financial)
for that period—the average value, for that period, of all the associate
entity debt of the entity that is attributable to the entity’s
*Australian permanent establishments.
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 that
period; 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:
|
Modifications of sections 820-190 to 820-220 |
||
|---|---|---|
|
Item |
Provisions |
Modifications |
|
1 |
Sections 820-190 to 820-220 |
A reference to an income year is taken to be a reference to that
period |
|
2 |
Subparagraph 820-215(1)(a)(ii) |
The reference to *debt deductions for the
income year is taken to be a reference to debt deductions that would be amounts
incurred by the entity during 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 |
adjusted average debt is taken to have the meaning given by
subsection (2) of this section average debt is taken to be the average value referred to in
paragraph (2)(a) of this section |
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.
Table of sections
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 an Australian entity to which one of the following
subparagraphs applies:
(i) the entity is an *associate entity of
another entity that is an *outward investing
entity (non-ADI) or an *outward investing
entity (ADI) for that period;
(ii) an outward investing entity (non-ADI) or an outward investing entity
(ADI) for that period is an associate entity of the entity.
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 the safe 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 the worldwide 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
eligible 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 the worldwide group capital
ratio.
Example: For the Southern Cross Bank, the average value of
the eligible 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 its *debt deductions for that year
(other than any debt capital that is attributable to any of the entity’s
*overseas permanent establishments).
capital shortfall means the amount by which the
*adjusted average equity capital of the entity
for that year (see subsection 820-300(3)) is less than the entity’s
*minimum capital amount for that
year.
debt deduction means each
*debt deduction covered by subsection
820-300(1).
(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, for that period:
(a) the entity is an *outward investing
entity (ADI); and
(b) the *adjusted average equity capital
of the entity is less than the entity’s
*minimum capital amount.
Note: To determine whether an entity is an outward investing
entity (non-ADI) for that period, see subsection 820-300(2).
(2) The entity’s adjusted average equity capital for
that period is:
(a) the average value, for that period, of all the
*equity capital of the entity (other than
equity capital attributable to any of its
*overseas permanent establishments);
minus
(b) the average value, for that period, of all the
*controlled foreign entity equity of the entity
(other than controlled foreign entity equity attributable to any of its overseas
permanent establishments).
(3) For the purposes of determining:
(a) the entity’s *minimum capital
amount for that period; and
(b) the amount of each *debt deduction to
be disallowed;
sections 820-305 to 820-325 apply in relation to that entity and that
period with the modifications set out in the following table:
|
Modifications of sections 820-305 to 820-325 |
||
|---|---|---|
|
Item |
Provisions |
Modifications |
|
1 |
Sections 820-305 to 820-325 |
A reference to an income year is taken to be a reference to that
period |
|
2 |
Section 820-325 |
A reference to subsection 820-300(1) is taken to be a reference to
subsection (1) of this section |
|
3 |
Section 820-325 |
adjusted average equity capital has the meaning given by
subsection (2) of this section average debt is taken to be the average value, for that
period, of all the *debt capital of the entity
that gives rise to its *debt deductions for
that year, to the extent that the debt capital: |
This Subdivision applies to a foreign entity that is an authorised
deposit-taking institution (an ADI). 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.
Table of sections
Operative provisions
820-395 Thin capitalisation rule for inward investing
entities (ADI)
820-400 Minimum capital amount
820-405 Safe harbour capital amount
820-410 Arm’s length capital amount
820-415 Amount of debt deduction disallowed
820-420 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, for that year:
(a) the entity is an *inward investing
entity (ADI) (see subsection (2)); and
(b) the entity’s *average equity
capital (see subsection (3)) is less than its
*minimum capital amount (see
section 820-400);
to the extent that the debt deduction:
(c) is attributable to an *Australian
permanent establishment of the entity at or through which it carries on its
banking business; and
(d) is not an *allowable OB
deduction.
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 820-415.
Note 3: For the rules that apply to an entity that is an
inward investing entity (ADI) for part of an income year, see
section 820-420 in conjunction with subsection (2) of this
section.
Inward investing entity (ADI)
(2) The entity is an inward 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 a
*foreign bank that carries on its banking
business in Australia at or through one or more of its
*Australian permanent establishments.
Note: The entity is required to keep certain records, see
Subdivision 820-L.
Average equity capital
(3) The entity’s average equity capital for an income
year is the sum of the following:
(a) the average value, for that year, of the
*equity capital of the entity that:
(i) is attributable to the *Australian
permanent establishments at or through which it carries on its banking business
in Australia; but
(ii) has not been allocated to the *OB
activities of the Australian permanent establishments;
(b) the average value, for that year, of the total amounts that:
(i) are made available by the entity to the Australian permanent
establishments of the entity as loans to the Australian permanent
establishments; and
(ii) do not give rise to any *debt
deductions of the entity for that year.
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 lesser of the following amounts:
(a) the *safe harbour capital
amount;
(b) the *arm’s length capital
amount.
The entity’s safe harbour capital amount for the
income year 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 that
part of the *risk-weighted assets of the entity
that:
(a) is attributable to the *Australian
permanent establishments at or through which it carries on its banking business
in Australia; but
(b) is not attributable to the *OB
activities of the Australian permanent establishments.
Step 2. Multiply the result of step 1 by 4%. The result of this step
is the safe harbour capital amount.
Example: The Global Bank is a foreign bank that carries on
its banking business in Australia through a permanent establishment. The average
value of its relevant risk-weighted assets is $140 million. Multiplying that
amount by 4% results in $5.6 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 the
other part of the entity.
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 consist only of banking
business attributable to its *Australian
permanent establishments (other than its *OB
activities);
(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 happened
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 or any other accounting
standards that would otherwise apply to the entity), 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 general state of the Australian economy throughout that
year;
(h) 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.
The amount of *debt deduction disallowed
under subsection 820-395(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 its *debt deductions (other than
*allowable OB deductions) for that
year.
capital shortfall means the amount by which the
entity’s *average equity capital for that
year (see subsection 820-395(3)) is less than the entity’s
*minimum capital amount for that
year.
debt deduction means each
*debt deduction of the entity (other than
*allowable OB deduction) for the income
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, for that period:
(a) the entity is an *inward investing
entity (ADI); and
(b) the entity’s *average equity
capital is less than its *minimum capital
amount;
to the extent that the debt deduction:
(c) is attributable to an *Australian
permanent establishment of the entity at or through which it carries on its
banking business; and
(d) is not an *allowable OB
deduction.
Note: To determine whether an entity is an inward investing
entity (ADI) for that period, see subsection 820-395(2).
(2) The entity’s average equity capital for that
period is the sum of the following:
(a) the average value, for that period, of the
*equity capital of the entity that:
(i) is attributable to its *Australian
permanent establishments at or through which it carries on its banking business
in Australia; but
(ii) has not been allocated to the *OB
activities of the Australian permanent establishments;
(b) the average value, for that period, of the total amounts
that:
(i) are made available by the entity to the Australian permanent
establishments of the entity as loans to the Australian permanent
establishments; and
(ii) do not give rise to any *debt
deductions of the entity for that year.
(3) For the purposes of determining:
(a) the entity’s *minimum capital
amount for that period; and
(b) the amount of each *debt deduction to
be disallowed;
sections 820-400 to 820-415 apply in relation to that entity and that
period with the modifications set out in the following table:
|
Modifications of sections 820-400 to 820-415 |
||
|---|---|---|
|
Item |
Provisions |
Modifications |
|
1 |
Sections 820-400 to 820-415 |
A reference to an income year is taken to be a reference to that
period |
|
2 |
Section 820-415 |
The reference to subsection 820-395(1) is taken to be a reference to
subsection (1) of this section |
|
3 |
Section 820-415 |
average debt is taken to be the average value, for that
period, of all the *debt capital of the entity
that gives rise to its *debt deductions (other
than *allowable OB deductions) for that year
that are amounts incurred by the entity during that period average equity capital has the meaning given by
subsection (2) of this section |
This Subdivision sets out the thin capitalisation rules that apply to a
group of entities (called a resident TC group). If those rules apply to the
group, the rest of the Division does not apply separately to the entities in the
group.
This Subdivision tells you:
• how to construct a resident TC group; and
• how to classify the group (in terms of which Subdivision of this
Division to apply); and
• how to apply this Division to the group (including how the
application is modified).
Table of sections
Operative provisions
820-460 Application
820-465 Effect on entities in group if debt deduction
disallowed
820-470 Values to be based on what would be in consolidated
accounts for group
How to construct a resident TC group for an income year
820-500 Choice to be made by top entity of a maximum TC
group
820-505 Single group
820-510 Multiple groups
820-515 Partnerships, trusts, and Australian permanent
establishments of foreign banks, included in a resident TC
group
820-520 No grouping
820-525 Effect of choice
820-530 Entities making up group before end of income
year
How this Division applies to a resident TC group
820-550 Classification of the resident TC
group
820-555 Rest of Division not to apply to group headed by
foreign-controlled Australian ADI
820-560 Application of Subdivisions 820-B and 820-C to
group
820-565 Additional application of Subdivision 820-D to
group that includes foreign-controlled Australian ADI
820-570 Effect on safe harbour capital amount if
foreign-controlled Australian ADI in the group on-lends section 128F
amounts
820-575 Additional application of Subdivision 820-E to
group that includes Australian permanent establishment of foreign
bank
[This is the end of the Guide.]
(1) This Subdivision modifies how this Division applies to:
(a) each entity in a *resident TC group
for an income year; and
(b) each *foreign bank of which an
*Australian permanent establishment is in the
group.
(2) However, it does so only if:
(a) the group is one of these for the income year (because of
section 820-550):
(i) an *outward investor
(general);
(ii) an *outward investor
(financial);
(iii) an *inward investment vehicle
(general);
(iv) an *inward investment vehicle
(financial);
(v) an *outward investing entity (ADI);
or
(b) section 820-555 prevents this Division (except this Subdivision)
from applying to any entity in the group for the income year (because the group
is headed by a foreign-controlled Australian ADI); or
(c) section 820-565 applies Subdivision 820-D to the group for
the income year as if the group were an outward investing entity (ADI);
or
(d) section 820-575 applies Subdivision 820-E to the group for
the income year as if the group were an inward investing entity (ADI).
Note: This Subdivision does not
affect:
• how this Division applies to entities that are
not in a resident TC group, even if they are members of the same
wholly-owned group as an entity that is in a resident TC group;
or
• how this Division applies to entities that are in a
resident TC group that is not covered by any of paragraphs (2)(a) to
(d).
(3) This Division (except this Subdivision) applies to each entity in the
group as if:
(a) the group had been a company throughout the income year; and
(b) each entity in the group had been a division or part of that company,
rather than a separate entity, at all times during the income year when the
entity was in the group;
but with the modifications set out in sections 820-550 to
820-575.
Note 1: A consequence of paragraph (3)(b) is that this
Division (except this Subdivision) does not apply separately to each entity in
the group.
Note 2: To work out the times during the income year when
the entity was in the group, see section 820-530.
(4) Also, if an *Australian permanent
establishment of a *foreign bank is in the
group, this Division (except this Subdivision) applies as if, at all times when
it was in the group during the income year, the Australian permanent
establishment:
(a) had been a division or part of the group; and
(b) had not been a division or part of the foreign bank;
but with the modifications set out in sections 820-550 to
820-575.
(5) For the purposes of this Division (as applying because of this
Subdivision), this Act (except this Division) applies as if the matters referred
to in those subsections were the case.
Note: This means that the group is treated for the purposes
of this Division as if it had debt deductions for the income year, based on the
actual costs incurred by the entities and Australian permanent establishments
that are treated as divisions or parts under subsections (3) and
(4).
If:
(a) this Division (as applying because of this Subdivision) disallows all
or part of a *debt deduction of the group for
an income year; and
(b) apart from this Division, the deduction would be a deduction of an
entity for that income year;
this subsection disallows the deduction of that entity to the same
extent.
Note: This section does not disallow a debt deduction to the
extent that, at the time when the entity incurred the cost, the amount of the
cost was paid or owed to another entity that was in the group at that
time.
This is because the cost would not be a deduction for the
group, since both entities are treated as divisions or parts of the group (see
subsection 820-460(3)).
For the purposes of this Division as applying because of this Subdivision
to a *resident TC group for an income year, the
value of a particular matter as at a particular time is to be worked out, so far
as practicable, on the basis of the information that would be contained in a set
of consolidated accounts:
(a) prepared, in accordance with the
*accounting standard on consolidated accounts,
as at that time; and
(b) covering the entities of which the group consisted at that
time.
Note: This subsection does not depend on whether such a set
of consolidated accounts was prepared, or had to be prepared, for other
purposes.
(1) The *top entity of a
*maximum TC group for an income year may make
one only of the 3 choices set out in sections 820-505, 820-510 and
820-520.
(2) If there are 2 or more *top entities
in the maximum TC group, only one of them can make the choice.
(3) A maximum TC group for an income year consists
of:
(a) a company that, at the end of that income year, is a
*100% subsidiary of no other company;
and
(b) each 100% subsidiary of that company at the end of that income
year.
(4) A top entity of a
*maximum TC group for an income year is a
company in the group of which each company in the group that, at the end of that
income year:
(a) is an *Australian entity;
and
(b) is not a *prescribed dual
resident;
is a 100% subsidiary.
(1) The first choice can be made only if the income year ends on the same
day for all companies (eligible companies) in the
*maximum TC group that meet the conditions in
subsection (3) at the end of the income year.
Note: If this condition is not met, those eligible companies
for which the income year does end on the same day may be able to form one or
more resident TC groups under section 820-510.
(2) The choice is to treat as a single resident TC group for
the income year:
(a) all the eligible companies; and
(b) each partnership and trust that section 820-515 includes in the
resident TC group; and
(c) each *Australian permanent
establishment of a *foreign bank that
section 820-515 includes in the resident TC group.
(3) The conditions for each company are that it:
(a) is an *Australian entity;
and
(b) is not a *prescribed dual
resident.
(1) The second choice is to treat the eligible companies referred to in
section 820-505 as forming one or more resident TC groups for the income
year, on the basis that each resident TC group consists
of:
(a) one or more subgroups constructed under subsection (3) of this
section; and
(b) each partnership and trust that section 820-515 includes in the
resident TC group; and
(c) each *Australian permanent
establishment of a *foreign bank that
section 820-515 includes in the resident TC group.
(2) However, a resident TC group under subsection (1) can consist of
or include 2 or more subgroups constructed under subsection (3) only
if:
(a) each company in the 2 or more subgroups is at the end of the income
year a *100% subsidiary of the same company
(the link company) in the
*maximum TC group; and
(b) for each company in the 2 or more subgroups, the income year ends on
the same day; and
(c) the resident TC group includes every company:
(i) that is a *100% subsidiary of the
link company at the end of the income year; and
(ii) that meets the conditions in subsection 820-505(3) at the end of the
income year; and
(iii) for which the income year ends on that same day.
(3) A subgroup constructed under this subsection consists of:
(a) an entity (the node entity) that:
(i) is in the *maximum TC group;
and
(ii) meets the conditions in subsection 820-505(3) at the end of the
income year; and
(iii) is a *100% subsidiary of no other
entity in the maximum TC group that meets those conditions at the end of the
income year; and
(b) each 100% subsidiary (if any) of the node entity:
(i) that meets those conditions at the end of the income year;
and
(ii) for which the income year ends on the same day as for the node
entity.
A *resident TC group for an income year
also includes:
(a) each partnership:
(i) all interests in whose income and capital are beneficially owned at
the end of the income year by one or more companies in the group; and
(ii) for which the income year ends on the same day as for the companies
in the group; and
(b) each trust:
(i) all interests in whose income and capital are beneficially owned at
the end of the income year by one or more entities, each of which is a company
in the group or is covered by paragraph (a); and
(ii) for which the income year ends on the same day as for the companies
in the group; and
(c) for each *foreign bank:
(i) that is in the *maximum TC group and
chooses to include its *Australian permanent
establishments in the resident TC group; and
(ii) for which the income year ends on the same day as for the companies
in the resident TC group;
each Australian permanent establishment through which the foreign bank
carries on its banking business in Australia.
The third choice is to have this Division apply to each entity in the
*maximum TC group without being affected by
this Subdivision.
A choice has effect accordingly, and cannot be revoked. It binds each
entity in the *maximum TC group, and each
entity in each *resident TC group (if
any).
(1) A *resident TC group for an income
year is treated as consisting, at a particular time (the test
time) before the end of that income year, only of:
(a) the companies in the group determined under subsection (2);
and
(b) each partnership in the group, all interests in whose income and
capital are beneficially owned at the test time by one or more of those
companies; and
(c) each trust in the group, all interests in whose income and capital are
beneficially owned at the test time by one or more entities, each of which is
covered by paragraph (a) or (b) of this subsection; and
(d) for each *foreign bank:
(i) that is in the *maximum TC group;
and
(ii) that, at the test time, is a 100% subsidiary of the
*top entity of the
*maximum TC group or is that top
entity;
each *Australian permanent establishment
that is in the resident TC group, and through which the foreign bank carries on
its banking business in Australia at the test time.
Note: This section affects how Subdivision 820-G (about
calculating average values) applies to the group when there are 2 or more
measurement days to consider.
(2) The companies in the group determined under this subsection
are:
(a) in the case of a resident TC group under
section 820-505—each company in the group that, at the test
time:
(i) is a 100% subsidiary of the *top
entity of the *maximum TC group or is that top
entity; and
(ii) meets the conditions in subsection 820-505(3); or
(b) in the case of a resident TC group under section 820-510 that
consists of only one subgroup constructed under subsection 820-510(3)—each
company in the group that, at the test time:
(i) is a 100% subsidiary of the node entity or is the node entity;
and
(ii) is a 100% subsidiary of the top entity of the maximum TC group or is
that top entity; and
(iii) meets the conditions in subsection 820-505(3); or
(c) in the case of a resident TC group under section 820-510 that
consists of 2 or more subgroups constructed under subsection
820-510(3)—each company in the group that, at the test time:
(i) is a 100% subsidiary of the link company mentioned in paragraph
820-510(2)(a) or is that link company; and
(ii) is a 100% subsidiary of the top entity of the maximum TC group or is
that top entity; and
(iii) meets the conditions in subsection 820-505(3).
Outward investing entity (non-ADI)
(1) A *resident TC group for an income
year is an outward investing entity (non-ADI) for the income year
if, and only if, it is:
(a) an *outward investor (general) for
the income year (because of subsection (2)); or
(b) an *outward investor (financial) for
the income year (because of subsection (3) or (4)).
Outward investor (general)
(2) A *resident TC group for an income
year is an outward investor (general) for the income year
if:
(a) the group includes at least one entity that, apart from this
Subdivision, would be an *outward investor
(general) for a period ending at the end of the income year; and
(b) the group includes no entity that is a
*financial entity or
*ADI at the end of the income year.
Outward investor (financial)
(3) A *resident TC group for an income
year is an outward investor (financial) for the income year
if:
(a) the group includes at least one entity that, apart from this
Subdivision, would be an *outward investor
(financial) for a period ending at the end of the income year; and
(b) the group includes no entity that is an
*ADI at the end of the income year.
(4) A *resident TC group for an income
year is also an outward investor (financial) for the income year
if:
(a) the group includes at least one entity that, apart from this
Subdivision, would be an *outward investor
(general) for a period ending at the end of the income year; and
(b) the group includes at least one entity that is a
*financial entity at the end of the income
year; and
(c) the group includes no entity that is an
*ADI at the end of the income year.
Inward investing entity (non-ADI)
(5) A *resident TC group for an income
year is an inward investing entity (non-ADI) for the income year
if, and only if, it is:
(a) an *inward investment vehicle
(general) for the income year (because of subsection (6)); or
(b) an *inward investment vehicle
(financial) for the income year (because of subsection (7)).
Inward investment vehicle (general)
(6) A *resident TC group for an income
year is an inward investment vehicle (general) for the income year
if:
(a) the group includes at least one entity that, apart from this
Subdivision, would be an *inward investment
vehicle (general) for a period ending at the end of the income year;
and
(b) the group includes no entity that, apart from this Subdivision, would
be an *outward investing entity (non-ADI) for a
period ending at the end of the income year; and
(c) the group includes no entity that is a
*financial entity or
*ADI at the end of the income year.
Inward investment vehicle (financial)
(7) A *resident TC group for an income
year is an inward investment vehicle (financial) for the income
year if:
(a) the group includes at least one entity that, apart from this
Subdivision, would be an *inward investment
vehicle (financial) for a period ending at the end of the income year;
and
(b) the group includes no entity that, apart from this Subdivision, would
be an *outward investing entity (non-ADI) for a
period ending at the end of the income year; and
(c) the group includes no entity that is an
*ADI at the end of the income year.
Outward investing entity (ADI)
(8) A *resident TC group for an income
year is an outward investing entity (ADI) for the income year if,
and only if:
(a) the group includes at least one entity that, apart from this
Subdivision, would be an *outward investing
entity (ADI) for a period ending at the end of the income year; or
(b) the group includes:
(i) at least one entity that, apart from this Subdivision, would be an
*outward investing entity (non-ADI) for a
period ending at the end of the income year; and
(ii) at least one entity that is an *ADI
at the end of the income year.
This Division (except this Subdivision) does not apply to any entity that
is in a *resident TC group for an income year,
if the group:
(a) is not an *outward investing
entity (ADI) for the income year; and
(b) consists solely of 2 or more entities, each of which is, at the end of
the income year:
(i) an entity that is both a *foreign
controlled Australian entity and an *ADI;
or
(ii) a 100% subsidiary of an entity in the group that is covered by
subparagraph (i); or
(iii) a partnership, all interests in whose income and capital are
beneficially owned by one or more entities in the group, each of which is
covered by subparagraph (i) or (ii); or
(iv) a trust, all interests in whose income and capital are beneficially
owned at the end of the income year by one or more entities in the group, each
of which is covered by subparagraph (i), (ii) or (iii).
(1) This section has effect for the purposes of:
(a) applying Subdivision 820-B to a
*resident TC group that is an
*outward investor (financial) for an income
year; or
(b) applying Subdivision 820-C to a
*resident TC group that is an
*inward investment vehicle (financial) for an
income year.
(2) An *on-lent amount, or
*zero-capital amount, of an entity in the group
is to be taken into account only if the entity is a
*financial entity throughout the income
year.
(1) Subdivision 820-D applies to a
*resident TC group for an income year, as if
the group were an *outward investing entity
(ADI), if:
(a) the group is not an outward investing entity (ADI); and
(b) the group includes at least one entity that is at the end of the
income year both a *foreign controlled
Australian entity and an *ADI; and
(c) the group includes at least one company that is at the end of the
income year a 100% subsidiary of no entity covered by paragraph (b) of this
subsection.
However, it applies with the modifications in this section (in addition to
the other modifications in this Subdivision).
(2) The group’s adjusted average equity capital for
the income year is the total of:
(a) for each entity in the resident TC group that:
(i) is covered by paragraph (1)(b); or
(ii) would be in a subgroup constructed under subsection 820-510(3) for
which an entity in the resident TC group that is covered by
paragraph (1)(b) of this section would be the node entity;
the average value, for that year, of the total value of all the
entity’s eligible tier 1 capital (within the meaning of the
*prudential standards), reduced by the value of
the entity’s *debt interests that are
part of the entity’s eligible tier 1 capital; and
(b) for each entity in the resident TC group that:
(i) is covered by paragraph (1)(c); or
(ii) would be in a group constructed under subsection 820-510(3) for which
an entity in the resident TC group that is covered by paragraph (1)(c) of
this section would be the node entity;
the average value, for that year, of the total value of the
entity’s *paid-up share capital (other
than *debt interests), retained earnings,
general reserves and asset revaluation reserves; and
(c) for each *Australian permanent
establishment through which a *foreign bank
carries on its banking business in Australia and that is in the group, the
average value, for that year, of the *equity
capital of the foreign bank that:
(i) is attributable to that Australian permanent establishment;
but
(ii) has not been allocated to the *OB
activities of the foreign bank; and
(d) for each such Australian permanent establishment, the average value,
for that year, of the total amounts that:
(i) are made available by the foreign bank to the Australian permanent
establishment as loans to the Australian permanent establishment; and
(ii) do not give rise to any *debt
deductions of the foreign bank for that year.
Note: To calculate an average value for the purposes of this
Division, see Subdivision 820-G.
(3) For each *Australian permanent
establishment through which a *foreign bank
carries on its banking business in Australia and that is in the group, the
group’s *risk-weighted assets include
that part of the *risk-weighted assets of the
foreign bank that:
(a) is attributable to that Australian permanent establishment;
but
(b) is not attributable to the *OB
activities of the foreign bank.
(1) For the purposes of working out the
*safe harbour capital amount of a
*resident TC group for an income year,
if:
(a) the group includes an entity (the ADI subsidiary) that
is at the end of the income year both a *100%
subsidiary of a *foreign bank and an
*ADI; and
(b) the ADI subsidiary has:
(i) issued *debentures covered by
section 128F (which exempts interest on the debentures from withholding
tax) of the Income Tax Assessment Act 1936; and
(ii) made proceeds of the debentures available to an
*Australian permanent establishment of the
foreign bank, as loans to the Australian permanent establishment, for use in its
Australian business; and
(c) the Australian permanent establishment is not in the resident TC group
at the end of the income year;
the group’s *risk-weighted assets at
a particular time are reduced by the total amounts of proceeds of the debentures
that are at that time so made available by the ADI subsidiary.
(2) This section applies only to the 2001-2002 income year and to each of
the next 4 income years.
(1) Subdivision 820-E applies to a
*resident TC group for an income year, as if
the group were an *inward investing entity
(ADI), if:
(a) the group includes at least one
*Australian permanent establishment through
which a *foreign bank carries on its banking
business in Australia; and
(b) the group includes no entity that, apart from this Subdivision, would
be an *outward investing entity (non-ADI) or an
*outward investing entity (ADI), for a period
ending at the end of the income year; and
(c) the group includes no entity that is at the end of the income year
both a *foreign controlled Australian entity
and an *ADI.
However, it applies with the modifications in this section (in addition to
the other modifications in this Subdivision).
(2) The group’s average equity capital for the income
year is the total of:
(a) for each entity in the group, the average value, for that year, of the
total value of the entity’s *paid-up
share capital (other than *debt interests),
retained earnings, general reserves and asset revaluation reserves;
and
(b) for each *Australian permanent
establishment through which a *foreign bank
carries on its banking business in Australia and that is in the group, the
average value, for that year, of the *equity
capital of the foreign bank that:
(i) is attributable to that Australian permanent establishment;
but
(ii) has not been allocated to the *OB
activities of the foreign bank; and
(c) for each such Australian permanent establishment, the average value,
for that year, of the total amounts that:
(i) are made available by the foreign bank to the Australian permanent
establishment as loans to the Australian permanent establishment; and
(ii) do not give rise to any *debt
deductions of the foreign bank for that year.
(3) The group’s safe harbour capital amount for the
income year is worked out using the following method statement.
Method statement
Step 1. Work out the average value, for the income year, of the
group’s *risk-weighted assets.
Step 2. Multiply the result of step 1 by 4%. The result of this step
is the safe harbour capital amount.
(4) For each *Australian permanent
establishment through which a *foreign bank
carries on its banking business in Australia and that is in the group, the
group’s *risk-weighted assets include
that part of the *risk-weighted assets of the
foreign bank that:
(a) is attributable to that Australian permanent establishment;
but
(b) is not attributable to the *OB
activities of the foreign bank.
This Subdivision sets out the methods of calculating the average values for
the purposes of this Division. It also includes special rules about values and
valuation that are relevant to that calculation.
Note: Section 820-25 of the Income Tax (Transitional
Provisions) Act 1997 provides for a transitional rule that affects the
operation of this Subdivision in relation to an income year that begins before
1 July 2002 and ends before 30 June 2003.
Table of sections
How to calculate the average values
820-630 Methods of calculating average
values
820-635 The opening and closing balances
method
820-640 The 3 measurement days method
820-645 The frequent measurement method
Special rules about values and valuation
820-675 Amount to be expressed in Australian
currency
820-680 Valuation of assets, liabilities and equity
capital
820-685 Valuation of debt capital
820-690 Commissioner’s power
[This is the end of the Guide.]
Methods of calculation for entities that are not ADIs
(1) An entity to which Subdivision 820-B or 820-C applies for a
period that is all or a part of an income year must use one of the following
methods to calculate the average value of a matter mentioned in that Subdivision
for the purposes of that application:
(a) the method set out in section 820-635 (the
opening and closing balances method);
(b) the method set out in section 820-640 (the 3 measurement
days method);
(c) the method set out in section 820-645 (the frequent
measurement method).
Note 1: This subsection therefore applies only to an outward
investing entity (non-ADI) or an inward investing entity
(non-ADI).
Note 2: An entity cannot apply the 3 measurement days method
if it is unable to meet the requirements in subsection 820-640(1). An
entity’s ability to apply that method may therefore be
limited.
(2) The entity must use the same method to calculate all such average
values for that period for the purposes of that application.
Commissioner’s power
(3) If the entity fails to comply with subsection (2), the
Commissioner may, irrespective of the methods used by the entity, recalculate
all the average values for the entity and that period by using the opening and
closing balances method.
Method of calculation for ADIs
(4) An entity to which Subdivision 820-D or 820-E applies for a
period that is all or a part of an income year must use the frequent measurement
method to calculate the average value of a matter mentioned in that Subdivision
for the purposes of that application.
Note: This subsection therefore applies only to an outward
investing entity (ADI) or an inward investing entity (ADI).
An entity that uses the opening and closing balances method for a period
must apply the following method statement to calculate the average value of a
matter for that period.
Method statement
Step 1. Work out the value of the particular matter as at the first
day of that period.
Step 2. Work out the value of the particular matter as at the last
day of that period.
Step 3. Add the results of steps 1 and 2.
Step 4. Divide the result of step 3 by 2. The result of this step is
the average value.
Example: ALWZ Corporation, a company that is an Australian
entity, held assets valued at $95 million on the first day of an income year. It
held assets valued at $105 million at the end of that year. Adding those amounts
and dividing the result by 2 gives the average value of its assets for that
year, which is $100 million.
Application
(1) An entity must not use the 3 measurement days method for a period that
is a part of an income year unless the following days occur during that
period:
(a) the last day of the first half of the income year;
(b) one or both of the following days:
(i) the first day of that year;
(ii) the last day of that year.
Method statement
(2) An entity that uses the 3 measurement days method for a period must
apply the following method statement to calculate the average value of a matter
for that period.
Method statement
Step 1. Work out the value of the particular matter as at the first
measurement day (see subsection (3)).
Step 2. Work out the value of the particular matter as at the second
measurement day (see subsection (3)).
Step 3. Work out the value of the particular matter as at the third
measurement day (see subsection (3)).
Step 4. Add the results of steps 1, 2 and 3.
Step 5. Divide the result of step 4 by 3. The result of this step is
the average value.
Example: RJ Corporation held assets valued at $115 million
on the first day of an income year. It held assets valued at $105 million on the
last day of the first half of that year, and $80 million on the last day of that
year. Adding these amounts and dividing the result by 3 gives the average value
of its assets for that year, which is $100 million.
Measurement days
(3) The following are the first, second and
third measurement days:
(a) the first measurement day is the first day of the income
year if it occurs during that period, otherwise it is the first day of that
period;
(b) the second measurement day is the last day of the first
half of that year;
(c) the third measurement day is the last day of that year
if it occurs during that period, otherwise it is the last day of that
period.
(1) An entity that uses the frequent measurement method for a period (the
measurement period) must calculate the average value of a matter
for that period by applying:
(a) the method statement in subsection (2) (generally based on
quarterly periods); or
(b) the method statement in subsection (4) (generally based on
regular intervals).
This section does not prevent the entity from applying the method statement
in subsection (2) for one matter and the method statement in
subsection (4) for another matter in relation to that period.
(2) This is the method statement for the purposes of
paragraph (1)(a).
Method statement
Step 1. Work out the value of the particular matter as at each of
the following measurement days:
(a) the first day of the measurement period;
(b) the last day of each quarterly period of that income year (see
subsection (3)) that occurs during the measurement period (if
any);
(c) the last day of the measurement period if it is not a day covered by
paragraph (b).
Step 2. Add up those values.
Step 3. Divide the result of step 2 by the number of measurement
days. The result of this step is the average value.
Example: KJW Finance Corporation, a company that is an
Australian entity, held assets valued at $130 million on the first day of an
income year. On the last day of each quarterly period for that year it held
assets valued at $140 million, $120 million, $110 million and $100 million
respectively. Adding these amounts and dividing the result by 5 gives the
average value of its assets for that year, which is $120
million.
Quarterly period
(3) The quarterly periods of the income year are:
(a) the period consisting of the first, second and third months of that
year; and
(b) each successive period of 3 months that occurs after that period
during that year.
(4) This is the method statement for the purposes of
paragraph (1)(b):
Method statement
Step 1. Work out the value of the particular matter as at each of
the following measurement days:
(a) the first day of the measurement period;
(b) the last day of each regular interval for the measurement period (see
subsection (5));
(c) the last day of the measurement period if it is not a day mentioned in
paragraph (b).
Step 2. Add up those values.
Step 3. Divide the result of step 2 by the number of measurement
days. The result of this step is the average value.
Example: TW Corporation, a company that is an Australian
entity, adopts a weekly interval for the purposes of this subsection. The
measurement period is a period of 12 weeks. On the first day of that period it
had $70 million of debt capital. Its debt capital was $80 million on the last
day of each of the first 7 weeks, and $95 million on the last day of the
remaining 5 weeks. Adding these amounts and dividing the result by 13 (the
number of measurement days) gives the average value of its debt capital for that
period, which is $85 million.
Regular intervals
(5) The regular intervals for the measurement period
are:
(a) a period which consists of a fixed number of days or months (not less
than one day and not more than 3 months) adopted by the entity and begins at the
start of the first day of the measurement period; and
(b) each successive period of the same duration that occurs during the
measurement period.
Note: Examples of a regular interval therefore include a
daily, weekly, fortnightly, monthly or quarterly interval.
(6) The entity must use the same regular intervals when calculating the
average values of different matters under subsection (4) for that
period.
(1) For the purposes of this Division, an amount (including a value used
in a calculation under this Division) is to be expressed in Australian
currency.
(2) An entity must comply with the
*accounting standards in converting an amount
into Australian currency.
(3) Subsection (2) has effect whether the
*accounting standard would otherwise apply to
the entity or not.
(1) For the purposes of this Division, an entity must comply with the
*accounting standards in calculating:
(a) the value of its assets (including revaluing its assets for the
purposes of that calculation); and
(b) the value of its liabilities (including its
*debt capital); and
(c) the value of its *equity
capital.
(2) A revaluation of assets mentioned in paragraph (1)(a) must be
made by a person:
(a) who is an expert in valuing such assets; and
(b) whose pecuniary or other interests could not reasonably be regarded as
being capable of affecting the person’s ability to give an unbiased
opinion in relation to that revaluation.
(3) Subsection (1) has effect whether the
*accounting standard would otherwise apply to
the entity or not.
For the purposes of this Division, the regulations may make additional
provisions for the valuation of the *debt
capital of an entity.
If the Commissioner considers that, in relation to a calculation under
this Division, an entity has:
(a) overvalued its assets; or
(b) undervalued its liabilities (including its
*debt capital);
the Commissioner may, having regard to the
*accounting standards, substitute a value that
the Commissioner considers is appropriate.
This Subdivision sets out rules about the following:
• the meaning of an Australian controller of a foreign entity (for
the purpose of determining whether or not an entity is an outward investing
entity (non-ADI) or outward investing entity (ADI));
• the meaning of a foreign controlled Australian entity (for the
purpose of determining whether or not an entity is an inward investing entity
(non-ADI));
• the method of working out the extent to which one entity is
controlled by another entity for those purposes.
Table of sections
Australian controller of a foreign entity
820-745 What is an Australian controlled foreign
entity?
820-750 What is an Australian controller of a controlled
foreign company?
820-755 What is an Australian controller of a controlled
foreign trust?
820-760 What is an Australian controller of a controlled
foreign corporate limited partnership?
Foreign controlled Australian entity
820-780 What is a foreign controlled Australian
entity?
820-785 What is a foreign controlled Australian
company?
820-790 What is a foreign controlled Australian
trust?
820-795 What is a foreign controlled Australian
partnership?
Thin capitalisation control interest
820-815 General rule about thin capitalisation control
interest in a company, trust or partnership
820-820 Special rules about calculating TC control interest
held by an entity
820-825 Special rules about calculating TC control interests
held by a group of entities
820-830 Special rules about determining percentage of TC
control interest
820-835 Commissioner’s power
TC direct control interest, TC indirect control interest and TC control
tracing interest
820-855 TC direct control interest in a
company
820-860 TC direct control interest in a
trust
820-865 TC direct control interest in a
partnership
820-870 TC indirect control interest in a company, trust or
partnership
820-875 TC control tracing interest in a company, trust or
partnership
[This is the end of the Guide.]
An Australian controlled foreign entity, in relation to a
particular time, is an entity that is any of the following at that
time:
(a) a *controlled foreign company (except
a *corporate limited partnership);
(b) a *controlled foreign
trust;
(c) a *controlled foreign corporate
limited partnership.
An entity is an Australian controller of a
*controlled foreign company mentioned in
paragraph 820-745(a) at a particular time if, and only if, at that
time:
(a) that entity is an *Australian entity
holding a *TC control interest in the
controlled foreign company that is 10% or more; or
(b) all of the following subparagraphs apply:
(i) the controlled foreign company is such a company because of paragraph
340(c) of the Income Tax Assessment Act 1936;
(ii) not more than 5 Australian entities, including that entity, control
that controlled foreign company (either alone or together with
*associate entities and whether or not any
associate entity is also an Australian entity);
(iii) that entity holds a *TC control
interest in the controlled foreign company that is at least 1%.
Note: A corporate limited partnership that is a foreign
entity may be a controlled foreign corporate limited partnership, see
section 820-760.
An entity is an Australian controller of a
*controlled foreign trust at a
particular time if, and only if, at that time, the entity is an
*Australian entity holding a
*TC control interest in the trust that is 10%
or more.
Australian controller of a controlled foreign corporate limited
partnership
(1) An entity is an Australian controller of a
*controlled foreign corporate limited
partnership at a particular time if, and only if, at least one of
the following paragraphs applies to the entity at that time:
(a) the entity is an *Australian entity
that is a *general partner of the
partnership;
(b) the entity is an Australian entity holding a
*TC control interest in the partnership that is
10% or more.
Controlled foreign corporate limited partnership
(2) A *corporate limited partnership is
a controlled foreign corporate limited partnership at a particular
time if, and only if, at that time:
(a) it is not an *Australian entity;
and
(b) at least one of the following subparagraphs applies to it:
(i) at least one *general partner of the
partnership is an *Australian entity or an
*Australian controlled foreign
entity;
(ii) not more than 5 Australian entities (each of which holds a
*TC control interest in the partnership that is
at least 1%) hold a total of TC control interests in the partnership that is 50%
or more.
A foreign controlled Australian entity, in relation to a
particular time, is an entity that is any of the following at that
time:
(a) a *foreign controlled Australian
company;
(b) a *foreign controlled Australian
trust;
(c) a *foreign controlled Australian
partnership.
(1) A company (except a *corporate
limited partnership) is a foreign controlled Australian company
(or an FCAC) at a particular time if, and only if, at that time,
it is an *Australian entity to which at least
one of the following paragraphs applies:
(a) not more than 5 *foreign entities
(each of which holds a *TC control interest in
the company that is at least 1%) hold a total of TC control interests in the
company that is 50% or more;
(b) a foreign entity holds a TC control interest in the company that is
40% or more, and no other entity or entities (except an
*associate entity of the foreign entity or
entities including the foreign entity or its associate entities) control the
company;
(c) not more than 5 foreign entities control the company (whether or not
with associate entities and whether or not any associate entity is a foreign
entity).
Note: A corporate limited partnership that is an Australian
entity may be a foreign controlled Australian partnership, see
section 820-795.
Exception
(2) Despite subsection (1), a company is not an FCAC at a particular
time if, at that time:
(a) the company would, apart from this subsection, be an FCAC only because
of paragraph (1)(a) or (b); but
(b) the total of the following interests would be less than 20% if
paragraphs 820-875(2)(a) and (b) were disregarded:
(i) the *TC direct control interest in
the company held by the *foreign entity or
entities mentioned in paragraph (1)(a) or (b);
(ii) the *TC indirect control interest in
the company held by the foreign entity or entities;
(iii) the TC direct control interests in the company held by any
*associate entities of the foreign entity or
entities (other than any TC direct control interests that have been taken into
account in calculating the interest mentioned in
subparagraph (ii));
(iv) the TC indirect control interests in the company held by the
entity’s associate entities (other than any TC indirect control interests
that have been taken into account in calculating the interest mentioned in
subparagraph (ii)).
Note: Paragraphs 820-875(2)(a) and (b) set out special rules
under which an entity is taken to hold a TC control tracing interest in another
entity that is equal to 100%, which could then be taken into account in
calculating a TC indirect control interest.
(1) A trust is a foreign controlled Australian trust (or an
FCAT) at a particular time if, and only if, at that time, it is an
*Australian trust to which at least one of the
following paragraphs applies:
(a) not more than 5 *foreign entities
(each of which holds a *TC control interest in
the trust that is at least 1%) hold a total of TC control interests in the trust
that is 50% or more;
(b) a foreign entity holds a TC control interest in the trust that is 40%
or more, and no other entity or entities (except an
*associate entity of the foreign entity or
entities including the foreign entity or its associate entities) control the
trust;
(c) all of the following subparagraphs apply to the trust:
(i) at least one of the objects or beneficiaries of the trust is a foreign
entity;
(ii) there has been at least one distribution of income or capital of the
trust made to such an object or beneficiary (whether directly or indirectly)
during the income year in which that particular time occurs, or during the
preceding 2 income years;
(iii) the total TC control interests in the trust that are held by all its
beneficiaries that are *Australian entities do
not exceed 50%;
(d) a foreign entity is in a position to control the trust (see
subsection (2)).
(2) A *foreign entity is in a position to
control a trust if, and only if:
(a) the entity, or an *associate entity
of the entity, whether alone or with other associate entities (the
relevant entity), has the power to obtain the beneficial enjoyment
of the trust’s capital or income (whether or not by exercising its power
of appointment or revocation, and whether with or without another entity’s
consent); or
(b) the relevant entity is able to control the application of the
trust’s capital or income in any manner (whether directly or indirectly);
or
(c) the relevant entity is able to do a thing mentioned in
paragraph (a) or (b) under a *scheme;
or
(d) a trustee of the trust is accustomed or is under an obligation
(whether formally or informally), or might reasonably be expected, to act in
accordance with the relevant entity’s directions, instructions or wishes;
or
(e) the relevant entity is able to remove or appoint a trustee of the
trust.
Exception
(3) Despite subsection (1), a trust is not an FCAT at a particular
time if, at that time:
(a) the trust would, apart from this subsection, be an FCAT only because
of paragraph (1)(a) or (b); but
(b) the total of the following interests would be less than 20% if
paragraphs 820-875(2)(a) and (b) were disregarded:
(i) the *TC direct control interest in
the trust held by the *foreign entity or
entities mentioned in paragraph (1)(a), (b) or (c);
(ii) the *TC indirect control interest in
the trust held by the foreign entity or entities;
(iii) the TC direct control interests in the trust held by any
*associate entities of the foreign entity or
entities (other than any TC direct control interests that have been taken into
account in calculating the interest mentioned in
subparagraph (ii));
(iv) the TC indirect control interests in the trust held by the
entity’s associate entities (other than any TC indirect control interests
that have been taken into account in calculating the interest mentioned in
subparagraph (ii)).
Note: Paragraphs 820-875(2)(a) and (b) set out special rules
under which an entity is taken to hold a TC control tracing interest in another
entity that is equal to 100%, which could then be taken into account in
calculating a TC indirect control interest.
Corporate limited partnership
(1) A *corporate limited partnership is a
foreign controlled Australian partnership (or an
FCAP) at a particular time if, and only if, at that
time:
(a) it is an *Australian entity;
and
(b) at least one of the following subparagraphs applies to it:
(i) not more than 5 *foreign entities
(each of which holds a *TC control interest in
the partnership that is at least 1%) hold a total of TC control interests in the
partnership that are 50% or more;
(ii) at least one *general partner of the
partnership is a foreign entity or a *foreign
controlled Australian entity.
Partnership that is not a corporate limited partnership
(2) A partnership other than a *corporate
limited partnership is a foreign controlled Australian partnership
(or an FCAP) at a particular time if, and only if, at that
time:
(a) it is an *Australian partnership;
and
(b) at least one of the following subparagraphs applies to it:
(i) not more than 5 *foreign entities
(each of which holds a *TC control interest in
the partnership that is at least 1%) hold a total of TC control interests in the
partnership that is 50% or more;
(ii) a foreign entity holds a TC control interest in the partnership that
is 40% or more, and no other entity or entities (except an
*associate entity of the foreign entity or
entities including the foreign entity or its associate entities) control the
partnership.
Exception
(3) Despite subsections (1) and (2), a partnership is not an FCAP at
a particular time if, at that time:
(a) the partnership would, apart from this subsection, be an FCAP only
because of subparagraph (1)(b)(i), (2)(b)(i) or (ii); but
(b) the total of the following interests would be less than 20% if
paragraphs 820-875(2)(a) and (b) were disregarded:
(i) the *TC direct control interest in
the partnership held by the *foreign entity or
entities mentioned in subparagraph (1)(b)(i), (2)(b)(i) or (ii);
(ii) the *TC indirect control interest in
the partnership held by the foreign entity or entities;
(iii) the TC direct control interests in the partnership held by any
*associate entities of the foreign entity or
entities (other than any TC direct control interests that have been taken into
account in calculating the interest mentioned in
subparagraph (ii));
(iv) the TC indirect control interests in the partnership held by the
entity’s associate entities (other than any TC indirect control interests
that have been taken into account in calculating the interest mentioned in
subparagraph (ii)).
Note: Paragraphs 820-875(2)(a) and (b) set out special rules
under which an entity is taken to hold a TC control tracing interest in another
entity that is equal to 100%, which could then be taken into account in
calculating a TC indirect control interest.
Meaning of TC control interest
The thin capitalisation control interest (or TC
control interest) that an entity holds in a company, trust or
partnership at a particular time is the total of the following
interests:
(a) the *TC direct control interest (if
any) held by the entity in the company, trust or partnership at that
time;
(b) the *TC indirect control interest (if
any) held by the entity in the company, trust or partnership at that
time;
(c) the TC direct control interests (if any) held by the entity’s
*associate entities in the company, trust or
partnership at that time;
(d) the TC indirect control interests (if any) held by the entity’s
associate entities in the company, trust or partnership at that time.
This section has effect subject to sections 820-820 to 820-835 (which
set out special rules to avoid double counting).
Note: For the rules about a TC direct control interest, see
sections 820-855 to 820-865. For the rules about a TC indirect control
interest, see sections 820-870 to 820-875.
(1) This section applies for the purposes of calculating the
*TC control interest that an entity holds in a
company, trust or partnership.
(2) Disregard a *TC indirect control
interest held by the entity to the extent to which it is calculated by reference
to:
(a) a *TC direct control interest taken
into account under paragraph 820-815(c); or
(b) a TC indirect control interest taken into account under paragraph
820-815(d).
(3) Disregard a *TC indirect control
interest held by an *associate entity of the
entity to the extent to which it is calculated by reference to:
(a) a *TC direct control interest taken
into account under paragraph 820-815(a) or (c); or
(b) a TC indirect control interest taken into account under paragraph
820-815(b) or (d).
(4) Take into account only one of the following things if both would
otherwise be counted in calculating the *TC
control interest:
(a) the holding of a *TC direct control
interest by the entity or any other entity;
(b) an entitlement to acquire that TC direct control interest.
(5) The operation of this section in relation to an entity does not
prevent the operation of section 820-825 in relation to a group of entities
that includes that entity.
(1) This section applies for the purposes of calculating the total
*TC control interests that a group of entities
holds in a company, trust or partnership.
(2) Take into account a particular *TC
direct control interest or *TC indirect control
interest only once if it would otherwise be counted more than once because the
entity holding it is an *associate entity of
one or more entities in the group.
(3) Take into account only one of the following things if both of them
would otherwise be counted in calculating the total
*TC control interests:
(a) the holding of a *TC direct control
interest by an entity;
(b) an entitlement to acquire that TC direct control interest.
(4) The operation of this section in relation to a group of entities does
not prevent the operation of section 820-820 in relation to an entity that
is a member of that group.
(1) This section applies for the purposes of determining whether an
entity, or a group of entities, holds at least a particular percentage of
*TC control interests for the purposes of a
provision in this Subdivision.
(2) If, apart from this subsection, an entity, or each of 2 or more
entities, would hold a *TC direct control
interest equal to 100%, or a *TC control
tracing interest equal to 100%, in another entity (the controlled
entity):
(a) only the entity, or one of the 2 or more entities, is to be taken to
hold that particular interest in the controlled entity equal to 100%;
and
(b) another entity is not to be taken to hold that particular interest in
the controlled entity (whether or not it would, apart from this subsection, hold
that interest in the controlled entity equal to 100%).
For the purposes of this Subdivision, the Commissioner may
decide:
(a) which one of 2 things is to be taken into account for the purposes of
subsection 820-820(4) or subsection 820-825(3); or
(b) which one of 2 or more entities is to be chosen for the purposes of
paragraph 820-830(2)(a).
(1) A thin capitalisation direct control interest (or a
TC direct control interest) that an entity holds in
a company (except a *corporate limited
partnership) at a particular time is the percentage of the direct control
interest (if any) that the entity holds in the company at that time under the
provisions applied by subsection (2).
Note: For the TC direct control interest that an entity
holds in a corporate limited partnership, see
section 820-865.
(2) For the purposes of subsection (1), provisions of Part X of
the Income Tax Assessment Act 1936 are applied with the modifications set
out in the following table.
|
Modifications of provisions in Part X of the Income Tax
Assessment Act 1936 |
|---|
|
Item |
Provisions |
Modifications |
|---|---|---|
|
1 |
Section 350 (including any other provision in Part X of the
Income Tax Assessment Act 1936 that defines a term used in the
section) |
The section applies for the purposes of this Subdivision rather than only
for the purposes of Part X of the Income Tax Assessment Act
1936 |
|
2 |
Subsections 350(6) and (7) |
If section 350 is used for the purposes of determining whether or not
a company is a *foreign controlled Australian
company, the subsections apply as if subsection (6) referred to foreign
entities and foreign entity rather than Australian entities and Australian
entity If section 350 is used for the purposes of determining whether or not
an entity is an *Australian controller of a
*controlled foreign company, the subsections do
not apply |
|
3 |
Section 350 |
A reference to an *associate is taken to
be a reference to an *associate
entity |
(1) A thin capitalisation direct control interest (or a
TC direct control interest) that an entity holds in
a trust at a particular time is the percentage of the direct control interest
(if any) that the entity holds in the trust at that time under the provisions
applied by subsection (2).
(2) For the purposes of subsection (1), provisions of Part X of
the Income Tax Assessment Act 1936 are applied with the modifications set
out in the following table.
|
Modifications of provisions in Part X of the Income Tax
Assessment Act 1936 |
|---|
|
Item |
Provisions |
Modifications |
|---|---|---|
|
1 |
Section 351 (including any other provision in Part X of the
Income Tax Assessment Act 1936 that defines a term used in the
section) |
The section applies for the purposes of this Subdivision rather than only
for the purposes of Part X of the Income Tax Assessment Act
1936 |
|
2 |
Subsections 351(3) and (4) |
The subsections do not apply |
(3) In addition, for the purposes of determining whether or not an entity
(other than a trust mentioned in paragraph (a) or (b)) is a
*foreign controlled Australian
entity:
(a) if a trust is covered by paragraph 820-790(1)(c)—a foreign
entity that is an object of the trust at a particular time is taken to hold, at
that time, a TC direct control interest in the trust that is equal to 100%;
and
(b) if a trust is covered by paragraph 820-790(1)(d)—a foreign
entity that is in a position to control the trust at a particular time is taken
to hold, at that time, a *TC direct control
interest in the trust that is equal to 100%.
Note: The foreign entity therefore holds a TC control
tracing interest in the trust (see section 820-875). That interest may then
be taken into account in calculating any TC indirect control interest that the
foreign entity holds in another entity in relation to which the trust is an
interposed entity (see section 820-870). As a result, that other entity may
become a foreign controlled Australian entity.
A thin capitalisation direct control interest (or a
TC direct control interest) that an entity holds in
a partnership at a particular time is whichever of the following percentages is
applicable, and if there are 2 or more such percentages, the greatest of
them:
(a) in the case of a *corporate limited
partnership—100% if the entity is a
*general partner of the partnership;
(b) in the case of a partnership that is not a corporate limited
partnership—the percentage of the control of voting power in the
partnership that the entity has at that time;
(c) in any case—the percentage that the entity holds, or is entitled
to acquire, at that time, of any of the following:
(i) the total amount of assets or capital contributed to the
partnership;
(ii) the total rights of partners to distributions of capital, assets or
profits on the dissolution of the partnership;
(iii) the total rights of partners to distributions of capital, assets or
profits otherwise than on the dissolution of the partnership.
What is a TC indirect control interest?
(1) An entity holds a thin capitalisation indirect control interest
(or a TC indirect control interest) in a company, trust or
partnership at a particular time if, and only if:
(a) there is an interposed entity, or a continuous series of at least 2
interposed entities, between that entity and the company, trust or partnership;
and
(b) the interposed entity, or each of the interposed entities,
is:
(i) a *foreign controlled Australian
entity if this section is used for the purposes of determining whether or not an
entity is a foreign controlled Australian entity; or
(ii) an *Australian controlled foreign
entity if this section is used for the purposes of determining whether or not an
entity is an Australian controlled foreign entity or an
*Australian controller of such an
entity.
Note: In the case of a continuous series of interposed
entities between an entity and a company, trust or partnership, the entity must
hold a TC control tracing interest in the first interposed entity (see
subsection (2)). In addition, under subsection (2), each interposed
entity in the series must hold a TC control tracing interest in the next
interposed entity (except in the case of the last one, which holds a TC control
tracing interest in the company, trust or partnership).
What is an interposed entity?
(2) For the purposes of this section, an entity (the middle
entity) is interposed between 2 other entities at a particular time if,
and only if, at that time:
(a) the first of those 2 entities holds a
*TC control tracing interest in the middle
entity; and
(b) the middle entity holds a TC control tracing interest in the second of
those 2 entities.
Note: For the rules about a TC control tracing interest, see
section 820-875.
How to calculate a TC indirect control interest
(3) The *TC indirect control interest
that an entity (the top entity) holds in a company, trust or
partnership at a particular time is calculated in accordance with
subsection (4), (5) or (6) (as appropriate).
One interposed entity only
(4) The *TC indirect control interest is
the result of applying the following method statement if there is only one
interposed entity between the top entity and the company, trust or partnership
at that time.
Method statement
Step 1. Calculate the *TC control
tracing interest that the top entity holds in the interposed entity at that
time.
Step 2. Multiply the result of step 1 by the
*TC control tracing interest that the
interposed entity holds in the company, trust or partnership at that
time.
2 interposed entities
(5) The *TC indirect control interest is
the result of applying the following method statement if there are 2 interposed
entities between the top entity and the company, trust or partnership at that
time.
Method statement
Step 1. Calculate the *TC control
tracing interest that the top entity holds in the first of those interposed
entities at that time.
Step 2. Multiply the result of step 1 by the
*TC control tracing interest that the first
interposed entity holds in the next interposed entity (the second
interposed entity) at that time.
Step 3. Multiply the result of step 2 by the
*TC control tracing interest that the second
interposed entity holds in the company, trust or partnership at that
time.
More than 2 interposed entities
(6) The *TC indirect control interest is
the result of applying the following method statement if there are more than 2
interposed entities between the top entity and the company, trust or partnership
at that time.
Method statement
Step 1. Calculate the *TC control
tracing interest that the top entity holds in the first of those interposed
entities at that time.
Step 2. Multiply the result of step 1 by the
*TC control tracing interest that the first
interposed entity holds in the next interposed entity (the second
interposed entity) at that time.
Step 3. Multiply the result of step 2 by the
*TC control tracing interest that the second
interposed entity holds in the next interposed entity at that time.
Step 4. Continue this pattern of multiplying the result of the last
multiplication by the *TC control tracing
interest in the next interposed entity held by the preceding entity, ending with
a multiplication by the TC control tracing interest held by the last interposed
entity in the company, trust or partnership.
(1) A thin capitalisation control tracing interest (or a
TC control tracing interest) that an entity holds in
a company, trust or a partnership at a particular time is equal to the
*TC direct control interest in the company,
trust or partnership that the entity holds at that time.
(2) Despite subsection (1), an entity is taken to hold a
*TC control tracing interest in a company,
trust or partnership that is equal to 100% at a particular time if, at that
time:
(a) the entity and its *associate
entities hold a total of *TC direct control
interests in the company, trust or partnership that is 50% or more; or
(b) the following subparagraphs apply:
(i) the entity (the controlling entity) and its associate
entities hold a total of TC direct control interests that is 40% or more in the
company, trust or partnership;
(ii) no other entity or entities (except the controlling entity, its
associate entities or entities including the controlling entity or its associate
entities) control the company, trust or partnership; or
(c) the entity (whether or not together with associate entities) controls
the company, trust or partnership.
(3) Paragraph (2)(b) does not apply if the
*TC direct control interests mentioned in
subparagraph (2)(b)(i) are held in a
*corporate limited partnership.
This Subdivision sets out the meaning of various concepts about associate
entities for the purposes of this Division.
Table of sections
820-905 Associate entity
820-910 Associate entity debt
820-915 Associate entity equity
820-920 Associate entity excess amount
[This is the end of the Guide.]
Meaning of associate entity
(1) An entity (the first entity) that is not an individual
is an associate entity of another entity at a particular time if,
and only if, at that time, the first entity is an
*associate of that other entity and at least
one of the following paragraphs applies:
(a) that other entity holds an *associate
interest of 50% or more in the first entity (see subsections (4) to
(8));
(b) the first entity is accustomed or under an obligation (whether formal
or informal), or might reasonably be expected, to act in accordance with the
directions, instructions or wishes of that other entity in relation
to:
(i) the distribution or retention of the first entity’s profits;
or
(ii) the financial policies relating to the first entity’s assets,
*debt capital or
*equity capital;
whether those directions, instructions or wishes are, or might reasonably
be expected to be, communicated directly or through interposed
entities.
(2) An entity (the first entity) that is an individual is an
associate entity of another entity at a particular time if, and
only if, at that time:
(a) the first entity is an *associate of
that other entity; and
(b) the first entity:
(i) is accustomed or under an obligation (whether formal or informal);
or
(ii) might reasonably be expected;
to act in accordance with the directions, instructions or wishes of that
other entity in relation to the first entity’s financial affairs, whether
those directions, instructions or wishes are, or might reasonably be expected to
be, communicated directly or through interposed entities.
(3) Subsection (1) also has effect as if the first entity satisfies
paragraph (1)(b) if any of the following is expected to act in the manner
mentioned in that paragraph at that time:
(a) a director of the first entity if it is a company;
(b) a partner of the first entity if it is a partnership;
(c) the *general partner of the first
entity if it is a *corporate limited
partnership;
(d) the trustee of the first entity if it is a trust;
(e) a member of the first entity’s committee of management if it is
an unincorporated association or body.
Associate interest in a company (except a corporate limited
partnership)
(4) An associate interest that an entity holds in a company
(except a *corporate limited partnership) at a
particular time is the percentage of the direct control interest (if any) that
the entity holds in the company at that time under the provisions applied by
subsection (5).
(5) For the purposes of subsection (4), provisions of Part X of
the Income Tax Assessment Act 1936 are applied with the modifications set
out in the following table:
|
Modifications of provisions in Part X of the Income Tax
Assessment Act 1936 |
|---|
|
Item |
Provisions |
Modifications |
|---|---|---|
|
1 |
Section 350 (including any other provision in Part X of the
Income Tax Assessment Act 1936 that defines a term used in the
section) |
The section applies for the purposes of this subsection rather than only
for the purposes of Part X of the Income Tax Assessment Act
1936 |
|
2 |
Subsections 350(6) and (7) |
The subsections do not apply |
Associate interest in a trust
(6) An associate interest that an entity holds in a trust at
a particular time is the percentage of the direct control interest (if any) that
the entity holds in the trust at that time under the provisions applied by
subsection (7).
(7) For the purposes of subsection (6), provisions of Part X of
the Income Tax Assessment Act 1936 are applied with the modifications set
out in the following table:
|
Modifications of provisions in Part X of the Income Tax
Assessment Act 1936 |
|---|
|
Item |
Provisions |
Modifications |
|---|---|---|
|
1 |
Section 351 (including any other provision in Part X of the
Income Tax Assessment Act 1936 that defines a term used in the
section) |
The section applies for the purposes of this subsection rather than only
for the purposes of Part X of the Income Tax Assessment Act
1936 |
|
2 |
Subsections 351(3) and (4) |
The subsections do not apply |
Associate interest in a partnership
(8) An associate interest that an entity holds in a
partnership at a particular time is whichever of the following percentages is
applicable, and if there are 2 or more such percentages, the greatest of
them:
(a) in the case of a *corporate limited
partnership—100% if the entity is a
*general partner of the partnership;
(b) in the case of a partnership that is not a corporate limited
partnership—the percentage of the control of voting power in the
partnership that the entity has at that time;
(c) in any other case—the percentage that the entity holds, or is
entitled to acquire, at that time, of any of the following:
(i) the total amount of assets or capital contributed to the
partnership;
(ii) the total rights of partners to distributions of capital, assets or
profits on the dissolution of the partnership;
(iii) the total rights of partners to distributions of capital, assets or
profits otherwise than on the dissolution of the partnership.
(1) This section applies to an entity that is an
*outward investing entity (non-ADI) or an
*inward investing entity (non-ADI) for a period
that is all or a part of an income year.
(2) The entity’s associate entity debt at a particular
time during that period is the result of applying the method statement in this
subsection.
Method statement
Step 1. For each *associate entity
of the entity (the relevant entity) that is an
*outward investing entity (non-ADI) or
*inward investing entity (non-ADI) at that
particular time, work out the value, as at that time, of all the
*debt interests that have been issued to the
relevant entity by that associate entity if the debt interests satisfy the
following paragraphs:
(a) the debt interests remain *on issue
at that time;
(b) the costs in relation to the debt interest (to the extent that they
are not amounts mentioned in paragraph (2)(c) of the definition of
debt deduction that are ordinarily payable to an entity other than
the relevant entity) are assessable income of the relevant entity for an income
year;
(c) the terms and conditions for the debt interests are those that would
apply if the relevant entity and the associate entity were dealing at
arm’s length with each other.
Step 2. Add the results of step 1 for all such
*associate entities. The result is the
associate entity debt.
(1) This section applies to an entity that is an
*outward investing entity (non-ADI) or an
*inward investing entity (non-ADI) for a period
that is all or a part of an income year.
(2) The entity’s associate entity
equity at a particular time during that period is the total value of
*equity interests that the entity holds in all
of its *associate entities at that
time.
(1) This section applies to an entity that is an
*outward investing entity (non-ADI) or an
*inward investing entity (non-ADI) for a period
that is all or a part of an income year.
(2) The entity’s associate entity excess amount at a
particular time during that period is the result of applying the method
statement in this subsection.
Method statement
Step 1. Work out the premium excess amount (see
subsection (3)), as at that particular time, for an
*associate entity of the entity (the
relevant entity) that is an
*outward investing entity (non-ADI) or an
*inward investing entity (non-ADI) at that
time.
Step 2. Add to the result of step 1 the attributable safe harbour
excess amount (see subsection (4)) for that
*associate entity as at that time.
Step 3. Apply steps 1 and 2 to all such
*associate entities of the relevant entity and
add all the results that are positive amounts. The result of this step is the
associate entity excess amount.
(3) An *associate entity’s
premium excess amount at a particular time during 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 an entity’s
*overseas permanent establishments if it is an
*outward investing entity (non-ADI) at that
time.
Method statement
Step 1. Work out the value, as at that particular time, of all the
*associate entity equity of the relevant entity
that is attributable to the *associate entity
(other than the relevant entity’s
*controlled foreign entity equity if the
relevant entity is an outward investing entity (non-ADI) at that
time).
Step 2. Reduce the result of step 1 by the value, as at that time,
of the *equity capital of the
*associate entity that is attributable to the
relevant entity.
Step 3. Multiply the result of step 2 by:
(a) 20/21 if the
*associate entity excess amount is applied for
the purpose of working out the *total debt
amount of the relevant entity for that period under subsection 820-100(2),
820-200(2) or 820-210(2); or
(b) 3/4 if the
associate entity excess amount is applied for the purpose of working out the
*adjusted on-lent amount of the relevant entity
for that period under subsection 820-100(3), 820-200(3) or 820-210(3);
or
(c) 3/4 if the
associate entity excess amount is applied for the purpose of working out the
*safe harbour debt amount of the relevant
entity for that period under section 820-95, 820-195 or 820-205;
or
(d) the result of step 4 of the method statement in subsection (1) or
(2) of section 820-110 (as appropriate) if the associate entity excess
amount is applied for the purpose of working out the
*worldwide gearing debt amount of the relevant
entity for that period.
The result of this step is the premium excess
amount.
(4) The *associate entity’s
attributable safe harbour excess amount at a particular time
during 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 an entity’s *overseas
permanent establishments if it is an *outward
investing entity (non-ADI) at that time.
Method statement
Step 1. Work out the *safe harbour
debt amount of the *associate entity for the
day during which that particular time occurs as if it were an
*outward investing entity (non-ADI) or
*inward investing entity (non-ADI), as
appropriate, for the period consisting only of that day.
Step 2. Reduce the result of step 1 by the value, as at that time,
of the *adjusted average debt of the
*associate entity for that day as if it were an
*outward investing entity (non-ADI) or
*inward investing entity (non-ADI), as
appropriate, for the period consisting only of that day. If the result of this
step is a negative amount, it is taken to be nil.
Step 3. Multiply the result of step 2 by the value, as at that time,
of the *equity capital of the
*associate entity attributable to the relevant
entity.
Step 4. Divide the result of step 3 by the value, as at that time,
of all the *equity capital of the
*associate entity. The result of this step is
the attributable safe harbour excess amount.
This Subdivision provides for the meanings of an equity interest in a trust
or partnership for the purposes of this Division.
Table of sections
920-930 Equity interest in a trust or
partnership
[This is the end of the Guide.]
Application of provisions
(1) For the purposes of this Division, an equity interest in
an entity that is a trust or partnership has the meaning given by the provisions
in Division 974 that are applied with the following
modifications:
|
Modifications of Division 974 |
||
|---|---|---|
|
Item |
Provisions |
Modifications |
|
1 |
Subdivisions 974-C and 974-D |
A reference in those provisions to a company is taken to be a reference to
an entity that is a trust or a partnership |
|
2 |
Subdivisions 974-C and 974-D |
A reference in those provisions to the equity test in subsection 974-75(1)
is taken to be a reference to the equity test in subsection (2) of this
section |
|
3 |
Section 974-75 |
The section does not apply and subsections (2) to (4) of this section
apply instead |
|
4 |
Section 974-80 |
The example does not apply |
|
5 |
Section 974-95 |
A reference in those provisions to the table in subsection 974-75(1) is
taken to be a reference to the table in subsection (2) of this
section |
|
6 |
Subsection 974-95(4) |
The subsection does not apply |
|
7 |
Subdivision 974-F |
The Subdivision applies for the purposes of this section |
|
8 |
Subdivisions 974-C, 974-D and 974-F |
A reference in those provisions to the regulations is taken to be a
reference to the regulations made under the provisions applied by this
subsection |
Note: An interest that satisfies both the equity test and
the debt test set out in Subdivision 974-B is treated as a debt interest
and not an equity interest (see that Subdivision in conjunction with the
provisions applied by subsection (1)).
Equity tests
(2) A *scheme satisfies the equity test
in this subsection in relation to an entity that is a trust or partnership if
the scheme gives rise to an interest set out in the following table:
|
Equity interests |
|
|---|---|
|
Item |
Interest |
|
1 |
In the case of a trust, an interest as a beneficiary of the trust In the case of a partnership, an interest as a partner in the
partnership |
|
2 |
An interest that carries a right to a variable or fixed return from the
entity if either the right itself, or the amount of the return, is in substance
or effect *contingent on the economic
performance (whether past, current or future) of: The return may be a return of an amount invested in the interest |
|
3 |
An interest that carries a right to a variable or fixed return from the
entity if either the right itself, or the amount of the return, is at the
discretion of: The return may be a return of an amount invested in the interest |
|
4 |
An *interest issued by the entity
that: |
This subsection has effect subject to subsection (3) (requirement for
financing arrangement).
Note: Section 974-90 as applied by subsection (1)
allows regulations to be made clarifying when a right or return is taken to be
at the discretion of an entity or an associate.
Financing arrangement
(3) A *scheme that would otherwise give
rise to an *equity interest in an entity that
is a trust or partnership because of an item in the table in subsection (2)
(other than item 1) does not give rise to an equity interest in the entity
unless the scheme is a *financing arrangement
(see section 974-130 as applied by this section) for the trust or
partnership.
Form interest may take
(4) The interest referred to in item 2, 3 or 4 in the table in
subsection (2) may take the form of a proprietary right, a chose in action
or any other form.
Regulations
(5) Subject to regulations made under subsection (6), the regulations
made under Subdivisions 974-C, 974-D and 974-F are applied for the purposes
of this section as if they were regulations made under the provisions applied by
subsection (1).
(6) Regulations may be made under the provisions applied by
subsection (1) specifically in relation to:
(a) an *equity interest in a trust;
or
(b) an equity interest in a partnership.
The zero-capital amount represents the value of certain assets that receive
special treatment in working out the maximum allowable debt of a financial
entity. This Subdivision sets out the rules about the calculation of this
amount.
Table of sections
820-942 How to work out the zero-capital
amount
[This is the end of the Guide.]
(1) An entity’s zero-capital amount at a particular
time is the result of the method statement in this subsection.
Method statement
Step 1. Work out the total amounts, as at that particular time, that
have been received by the entity for the sale of securities (other than any fees
associated with the sale) under the following
*arrangements if the entity has not repurchased
the securities under the arrangements at that time:
(a) reciprocal purchase agreements (otherwise known as repurchase
agreements);
(b) sell-buyback arrangements;
(c) securities loan arrangements.
Step 2. Add to the result of step 1 the total value, as at that
time, of all the *debt interests issued to the
entity to which all of the following paragraphs apply at that time:
(a) the debt interests remain *on
issue;
(b) the debt interests are loans of money for which no fees or charges
(other than interest on the loan) are imposed;
(c) each of the entities issuing the debt interests was given a long-term
foreign currency corporate credit rating of at least BBB (or equivalent rating)
by an internationally recognised rating agency when each of the debt interests
concerned was issued.
Step 3. Add to the result of step 2 the total value, as at that
time, of all the*debt interests that have been
issued to the entity to which both of the following paragraphs apply at that
time:
(a) the debt interests remain *on
issue;
(b) the risk weight of each of the debt interests is either 0% or 20%
under the *prudential standards.
Step 4. Add to the result of step 3 the total value, as at that
time, of all the *securitised assets that the
entity has at that time if the entity is a
*securitisation vehicle at that time (see
subsections (2) and (3)). The result is the zero-capital
amount.
Securitisation vehicle
(2) An entity is a securitisation vehicle if:
(a) it is an entity established for the purposes of acquiring, funding and
holding *securitised assets (see
subsection (3)); and
(b) it has acquired the securitised assets from another entity (the
originator); and
(c) the acquisition of the securitised assets is wholly funded by the
issuing of *debt interests by the entity;
and
(d) in issuing the debt interests, the entity does not receive any
guarantee, security or other form of credit support from any of its
*associate entities, the originator or any
associate entity of the originator; and
(e) the entity has not issued debt interests for any purpose other than
for the purpose of funding the acquisition of the securitised assets;
and
(f) there are no debt interests issued to the entity by any of the
entity’s associate entities, the originator or any associate entity of the
originator; and
(g) any *arrangements the entity has with
any of its associate entities, the originator or any associate entity of the
originator are those that would reasonably be expected to have been entered into
by parties dealing at arm’s length with each other.
Securitised assets
(3) An asset of an entity is a securitised asset
if:
(a) the entity is a *securitisation
vehicle; and
(b) the asset consists of:
(i) *debt interests issued by an entity
other than the originator in relation to the securitisation vehicle that is
mentioned in paragraph (2)(b); or
(ii) a lease for the hire of goods that would be a lease covered by
paragraph (b) of the definition of on-lent amount if a
reference to an entity in that definition were a reference to that originator;
and
(c) the asset provides security for the issuing of debt interests that
funded the acquisition of the asset by the securitisation vehicle (see
paragraph (2)(c)).
This Subdivision sets out special record keeping requirements and related
provisions about the following:
(a) an entity that carries on its business at or through its Australian
permanent establishments;
(b) an arm’s length debt amount or arm’s length capital amount
worked out under this Division.
Table of sections
Records about Australian permanent establishments
820-960 Records about Australian permanent
establishments
820-965 Review of Commissioner’s
decision
Records about arm’s length amounts
820-980 Records about arm’s length debt amount and
arm’s length capital amount
Offences committed by certain entities
820-990 Offences—treatment of
partnerships
820-995 Offences—treatment of unincorporated
companies
[This is the end of the Guide.]
(1) If an entity:
(a) is an *inward investor (general),
*inward investor (financial) or
*inward investing entity (ADI), for all or a
part of an income year; and
(b) carries on its *business at or
through one or more of its *Australian
permanent establishments throughout that year;
the entity must keep the following records for that year:
(c) a statement of financial position for the
*Australian permanent establishments;
(d) a statement of financial performance for the Australian
permanent establishments.
Note: A person must comply with the requirements in
section 262A of the Income Tax Assessment Act 1936 about the keeping
of these records (see subsections (2AA) and (3) of that
section).
(2) The entity must prepare these records:
(a) before the time by which the entity must lodge its tax return for the
income year; and
(b) in accordance with the *accounting
standards (in particular, but not limited to, accounting standards AASB 1001,
AASB 1018 and AASB 1040) as if:
(i) the *Australian permanent
establishments were an entity (the notional entity) for which
these records would be required to be prepared under the accounting standards;
and
(ii) for the purposes of the statement of financial position—the
assets, liabilities (including *debt capital)
and *equity capital that are attributable to
the Australian permanent establishments for that income year were assets,
liabilities and equity of the notional entity for that year; and
(iii) for the purposes of the statement of financial performance—the
revenues and expenses that are attributable to the Australian permanent
establishments for that year were the revenues and expenses of the notional
entity for that year; and
(iv) a reference to a financial year in the accounting standards were a
reference to an income year.
(3) In this section, statement of financial position and
statement of financial performance have the same respective
meanings as in the *accounting standards and
include all the notes required to accompany them under the standards.
(4) Despite subsections (2) and (3), the Commissioner may decide that
an entity is not required to comply with all or any part of the
*accounting standards for one or more income
years for the purposes of this section if the Commissioner is satisfied that it
would be unreasonable that the entity be required to do so.
(5) The Commissioner:
(a) may make a decision under subsection (4) in such cases and to
such extent as the Commissioner thinks fit; and
(b) must make the decision in writing.
A person who is dissatisfied with a decision of the Commissioner under
subsection 820-960(4) may object against the decision in the manner set out in
Part IVC of the Taxation Administration Act 1953.
(1) An entity must keep records under this section for an
*arm’s length debt amount or
*arm’s length capital amount that the
entity worked out for the purposes of this Division.
(2) The records must contain particulars about the factual assumptions and
relevant factors mentioned in section 820-105, 820-215, 820-315 or 820-410
(as appropriate) that have been taken into account in working out that
amount.
Note: A person must comply with the requirements in
section 262A of the Income Tax Assessment Act 1936 about the keeping
of these records (see subsections (2AA) and (3) of that
section).
(1) The provisions set out in the following paragraphs (the
relevant provisions) apply, in relation to records required to be
kept under this Subdivision, to a partnership as if it were a person, but with
the modifications set out in this section:
(a) sections 820-960 and 820-980;
(b) section 262A of the Income Tax Assessment Act
1936;
(c) Part III of the Taxation Administration Act
1953.
(2) If the relevant provisions would otherwise require or permit something
to be done by the partnership, the thing may be done by one or more of the
partners on behalf of the partnership.
(3) An obligation that would otherwise be imposed on the partnership by
the relevant provisions:
(a) is imposed on each partner instead; but
(b) may be discharged by any of the partners.
(4) The partners are jointly and severally liable to pay an amount that
would otherwise be payable by the partnership under the relevant
provisions.
(5) An offence against any of the relevant provisions that would otherwise
be committed by the partnership is taken to have been committed by each partner
who:
(a) did the relevant act or made the relevant omission; or
(b) aided, abetted, counselled or procured the relevant act or omission;
or
(c) was in any way knowingly concerned in, or party to, the relevant act
or omission (whether directly or indirectly or whether by any act or omission of
the partner).
(6) For the purposes of subsection (5):
(a) to establish that a partnership engaged in a particular conduct, it is
sufficient to show that the conduct was engaged in by a partner:
(i) in the ordinary course of the business of the partnership;
or
(ii) within the scope of the actual or apparent authority of the partner;
and
(b) to establish that a partnership had a particular state of mind when it
engaged in that conduct, it is sufficient to show that the partner had the
relevant state of mind.
(7) For the purposes of the relevant provisions, a change in the
composition of a partnership does not affect the continuity of the
partnership.
(1) The provisions set out in the following paragraphs (the
relevant provisions) apply, in relation to records required to be
kept under this Subdivision, to an unincorporated company as if it were a
person, but with the modifications set out in this section:
(a) sections 820-960 and 820-980;
(b) section 262A of the Income Tax Assessment Act
1936;
(c) Part III of the Taxation Administration Act
1953.
(2) If the relevant provisions would otherwise require or permit something
to be done by the company, the thing may be done by one or more members of the
company’s committee of management (the members) on behalf of
the company.
(3) An obligation that would otherwise be imposed on the company by the
relevant provisions:
(a) is imposed on each member instead; but
(b) may be discharged by any of the members.
(4) The members are jointly and severally liable to pay an amount that
would otherwise be payable by the company under the relevant
provisions.
(5) An offence against any of the relevant provisions that would otherwise
be committed by the company is taken to have been committed by each member
who:
(a) did the relevant act or made the relevant omission; or
(b) aided, abetted, counselled or procured the relevant act or omission;
or
(c) was in any way knowingly concerned in, or party to, the relevant act
or omission (whether directly or indirectly or whether by any act or omission of
the member).
(6) For the purposes of subsection (5), to establish that the company
had a particular state of mind when it engaged in a particular conduct, it is
sufficient to show that a member had the relevant state of mind.
[The next Chapter is Chapter 5.]
Part 2—Consequential
and other amendments
Income Tax Assessment Act
1936
2 After subsection 128F(1)
Insert:
(1A) This section also applies to interest paid by a company in respect of
a debenture if:
(a) the company was a non-resident when it issued the debenture;
and
(b) the company is a non-resident when the interest is paid; and
(c) the debenture was issued, and the interest is paid, by the company in
carrying on business at or through a permanent establishment in Australia;
and
(d) the issue of the debenture satisfies the public offer test set out in
subsection (3) or (4).
3 Subsection 128F(9) (definition of
associate)
Repeal the definition, substitute;
associate has the meaning given by section 318, except
that paragraphs (1)(b), (2)(a) and (4)(a) of that section must be
disregarded.
4 Divisions 16F and 16G of
Part III
Repeal the Divisions.
5 Subsection 160AFD(9) (definition of foreign
income deduction)
Omit all the words after “any deduction”, substitute:
other than:
(a) a deduction under section 532 or 533; or
(b) a debt deduction (to the extent that it is not attributable to the
taxpayer’s overseas permanent establishment);
that, disregarding section 79D, is allowed or allowable from the
assessable income of the taxpayer of that year of income, to the extent that the
deduction relates to assessable foreign income of that class of any year of
income.
6 Paragraph 160ZZW(1)(a)
Omit “160ZZZB,”.
7 Section 160ZZZB
Repeal the section.
8 Section 160ZZZD
Repeal the section.
9 Subsection 160ZZZJ(2)
Repeal the formula and all the words after the formula,
substitute:
10 After subsection 262A(2)
Insert:
(2AA) The records to be kept under subsection (1) include
records required to be kept for the purposes of section 820-960 or 820-980
of the Income Tax Assessment Act 1997.
11 At the end of subsection
262A(3)
Add:
; and (c) for records required to be kept under section 820-960 of
the Income Tax Assessment Act 1997—comply with subsections (2)
to (4) of that section; and
(d) for records required to be kept under section 820-980 of that
Act—comply with subsection (2) of that section.
12 Paragraph 389(a)
Omit “Divisions 15, 16F and 16G”, substitute
“Division 15”.
13 At the end of
section 389
Add:
; (c) Division 820 of the Income Tax Assessment Act
1997.
Income Tax Assessment Act
1997
14 Section 12-5 (table item headed
“interest”)
Omit:
|
thin capitalisation by non-residents, generally |
159GZA to 159GZX |
|
15 Section 12-5 (after table item headed
“theft”)
Insert:
|
thin capitalisation |
|
|
|
disallowing of deductions |
Division 820 |
|
16 After section 25-85
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 (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
*associate entities.
Income Tax (Transitional
Provisions) Act 1997
20 At the end of
Division 25
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.
21 Section 405-1 (link
note)
Omit “Chapter 6”, substitute
“Chapter 5”.
22 After Division 405
Insert:
[The next Division is Division 820.]
Table of sections
820-10 Application of Division 820 of the Income Tax
Assessment Act 1997
820-15 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—hybrid
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.
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 the New 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 item applies to an interest if:
(a) 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, do not apply to transactions in relation to that interest because of
subitem 117(8) of that Schedule; and
(b) that interest:
(i) is a debt interest issued by a company; and
(ii) remains on issue; and
(c) the company is an entity to which Subdivision 820-B, 820-C, 820-D
or 820-E of the Income Tax Assessment Act 1997 applies.
(2) If that debt interest would otherwise have been taken into account in
the calculation of the adjusted average debt of that company under
section 820-85, 820-120, 820-185 or 820-225 of the Income Tax Assessment
Act 1997, that debt interest must be disregarded in that
calculation.
(3) If that debt interest would otherwise have been taken into account in
the calculation of:
(a) the adjusted average equity capital of that company under
section 820-300 or 820-330 of the Income Tax Assessment Act 1997;
or
(b) the average equity capital of that company under 820-395 or 820-420 of
that Act;
that debt interest must be disregarded in that calculation.
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.
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.
Income Tax Assessment Act
1997
1 Section 960-100
Repeal the link note, substitute:
Table of sections
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:
|
Distribution |
||
|---|---|---|
|
Item |
Corporate tax entity |
Distribution |
|
1 |
company |
a dividend, or something that is taken to be a dividend, under this
Act |
|
2 |
*corporate limited partnership |
(a) a distribution made by the partnership, whether in money or in other
property, to a partner in the partnership, other than a distribution, or so much
of a distribution, as is attributable to profits or gains arising during a year
of income in relation to which the partnership was not a corporate limited
partnership |
|
3 |
*corporate unit trust |
a unit trust dividend, as defined in subsection 102D(1) of the Income
Tax Assessment Act 1936 |
|
4 |
*public trading trust |
a unit trust dividend, as defined in section 102M of the Income Tax
Assessment Act 1936 |
(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.
2 Subsection 995-1(1)
Insert:
accounting standards has the same meaning as in the
Corporations Law.
3 Subsection 995-1(1)
Insert:
adjusted average debt has the meaning given by
sections 820-85, 820-120, 820-185 and 820-225.
4 Subsection 995-1(1)
Insert:
adjusted average equity capital has the meaning given by
sections 820-300, 820-330 and 820-565.
5 Subsection 995-1(1)
Insert:
adjusted on-lent amount has the meaning given by
sections 820-100, 820-200 and 820-210.
6 Subsection 995-1(1)
Insert:
allowable OB deduction has the meaning given by subsection
121EF(2) of the Income Tax Assessment Act 1936.
7 Subsection 995-1(1)
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.
8 Subsection 995-1(1)
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.
9 Subsection 995-1(1)
Insert:
associate entity has the meaning given by
section 820-905.
10 Subsection 995-1(1)
Insert:
associate entity debt has the meaning given by
section 820-910.
11 Subsection 995-1(1)
Insert:
associate entity equity has the meaning given by
section 820-915.
12 Subsection 995-1(1)
Insert:
associate entity excess amount has the meaning given by
section 820-920.
13 Subsection 995-1(1)
Insert:
associate interest has the meaning given by
section 820-905.
14 Subsection 995-1(1)
Insert:
Australian controlled foreign entity has the meaning given by
section 820-745.
15 Subsection 995-1(1)
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.
16 Subsection 995-1(1)
Insert:
Australian entity has the same meaning as in Part X of
the Income Tax Assessment Act 1936.
17 Subsection 995-1(1)
Insert:
Australian permanent establishment, of an entity, means a
*permanent establishment of the entity that is
in Australia.
18 Subsection 995-1(1)
Insert:
Australian trust has the same meaning as in Part X of
the Income Tax Assessment Act 1936.
19 Subsection 995-1(1)
Insert:
average equity capital has the meaning given by
sections 820-395, 820-420 and 820-575.
20 Subsection 995-1(1)
Insert:
controlled foreign company has the same meaning as in
Part X of the Income Tax Assessment Act 1936.
21 Subsection 995-1(1)
Insert:
controlled foreign corporate limited partnership has the
meaning given by section 820-760.
22 Subsection 995-1(1)
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.
23 Subsection 995-1(1)
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.
24 Subsection 995-1(1)
Insert:
controlled foreign trust has the same meaning as in
Part X of the Income Tax Assessment Act 1936.
25 Subsection 995-1(1)
Insert:
corporate tax entity has the meaning given by
section 960-115.
26 Subsection 995-1(1)
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.
27 Subsection 995-1(1)
Insert:
debt deduction has the meaning given by
section 820-40.
28 Subsection 995-1(1)
Insert:
distribution, by a
*corporate tax entity, has the meaning given by
section 960-120.
29 Subsection 995-1(1)
Insert:
equity capital, of an entity and at a particular time,
means:
(a) if the entity 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 an *outward
investing entity (ADI) at that time:
(i) the total value of all the entity’s eligible 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 eligible tier 1 capital at that time.
30 Subsection 995-1(1)
Insert:
equity interest in an entity that is a trust or partnership
has the meaning given by section 820-930.
31 Subsection 995-1(1)
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.
32 Subsection 995-1(1)
Insert:
foreign bank means an *ADI
that is a *foreign entity.
33 Subsection 995-1(1)
Insert:
foreign controlled Australian company has the meaning given
by section 820-785.
34 Subsection 995-1(1)
Insert:
foreign controlled Australian entity has the meaning given by
section 820-780.
35 Subsection 995-1(1)
Insert:
foreign controlled Australian partnership has the meaning
given by section 820-795.
36 Subsection 995-1(1)
Insert:
foreign controlled Australian trust has the meaning given by
section 820-790.
37 Subsection 995-1(1)
Insert:
foreign entity means an entity that is not an
*Australian entity.
38 Subsection 995-1(1)
Insert:
general partner means a partner of a
*corporate limited partnership whose liability
in relation to the partnership is not limited.
39 Subsection 995-1(1)
Insert:
inward investing entity (ADI) has the meaning given by
section 820-395.
40 Subsection 995-1(1)
Insert:
inward investing entity (non-ADI) has the meaning given by
sections 820-185 and 820-550.
41 Subsection 995-1(1)
Insert:
inward investment vehicle (financial) has the meaning given
by sections 820-185 and 820-550.
42 Subsection 995-1(1)
Insert:
inward investment vehicle (general) has the meaning given by
sections 820-185 and 820-550.
43 Subsection 995-1(1)
Insert:
inward investor (financial) has the meaning given by
section 820-185.
44 Subsection 995-1(1)
Insert:
inward investor (general) has the meaning given by
section 820-185.
45 Subsection 995-1(1)
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).
46 Subsection 995-1(1)
Insert:
maximum TC group has the meaning given by
section 820-500.
47 Subsection 995-1(1)
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).
48 Subsection 995-1(1)
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.
49 Subsection 995-1(1)
Insert:
OB activity has the meaning given by section 121D of the
Income Tax Assessment Act 1936.
50 Subsection 995-1(1)
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.
51 Subsection 995-1(1)
Insert:
outward investing entity (ADI) has the meaning given by
sections 820-300 and 820-550.
52 Subsection 995-1(1)
Insert:
outward investing entity (non-ADI) has the meaning given by
sections 820-85 and 820-550.
53 Subsection 995-1(1)
Insert:
outward investor (financial) has the meaning given by
sections 820-85 and 820-550.
54 Subsection 995-1(1)
Insert:
outward investor (general) has the meaning given by
sections 820-85 and 820-550.
55 Subsection 995-1(1)
Insert:
overseas permanent establishment, of an entity, means a
*permanent establishment of the entity that is
in a country other than Australia.
56 Subsection 995-1(1)
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).
57 Subsection 995-1(1)
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.
58 Subsection 995-1(1)
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.
59 Subsection 995-1(1)
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.
60 Subsection 995-1(1)
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.
61 Subsection 995-1(1)
Insert:
securitised asset has the meaning given by
section 820-942.
62 Subsection 995-1(1)
Insert:
securitisation vehicle has the meaning given by
section 820-942.
63 Subsection 995-1(1)
Insert:
TC control interest has the meaning given by
section 820-815 (which is affected by sections 820-820 to
820-835).
64 Subsection 995-1(1)
Insert:
TC control tracing interest has the meaning given by
section 820-875.
65 Subsection 995-1(1)
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.
66 Subsection 995-1(1)
Insert:
TC indirect control interest has the meaning given by
section 820-870.
67 Subsection 995-1(1)
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.
68 Subsection 995-1(1)
Insert:
top entity of a *maximum TC
group has the meaning given by section 820-500.
69 Subsection 995-1(1)
Insert:
total debt amount has the meaning given by
sections 820-100, 820-200 and 820-210.
70 Subsection 995-1(1)
Insert:
worldwide capital amount, for an
*outward investing entity (ADI), has the
meaning given by section 820-320.
71 Subsection 995-1(1)
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.
72 Subsection 995-1(1)
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.
73 Subsection 995-1(1)
Insert:
worldwide gearing debt amount, for an
*outward investing entity (non-ADI), has the
meaning given by section 820-110.
74 Subsection 995-1(1)
Insert:
zero-capital amount has the meaning given by
section 820-942.