Before you start – record keeping
An inward investing entity (ADI) carrying on business at or through a permanent establishment with total revenues attributable to that permanent establishment of at least $2 million are subject to certain record keeping requirements. These requirements are financial statements, including all the necessary notes. They must be prepared for its Australian permanent establishment using the Australian accounting standards or the accounting standards of Germany, Japan, France, USA, UK, Canada, New Zealand or the international accounting standards.
Step 1
Broadly, the average equity capital of an inward investing entity (ADI) is the equity capital allocated to its Australian operations.
Table 34: Inward investing entity (ADI)'s step 1 and Worksheet 28: Inward investing entity (ADI)'s step 1 explain how an inward investing entity (ADI) calculates its average equity capital.
For more information, see subsection 820-395(3) of the ITAA 1997.
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Steps |
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Step 1.1: Calculate the average value, for the income year, of all the ADI's equity capital attributable to its Australian permanent establishments through which it carries on its banking business in Australia that has not been allocated to the offshore banking activities of those Australian permanent establishments. Insert this amount at A on Worksheet 28: inward investing entity (ADI)'s step 1. |
ADI equity capital is the total value of the ADI's equity capital plus certain, long-term debt interests. Disregard any equity capital allocated to any of the Australian permanent establishments' offshore banking activities – see section 121D of the ITAA 1936. |
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Step 1.2: Calculate the average value, for that year, of all the amounts the ADI has lent to its Australian permanent establishments through which it carries on its banking business in Australia that do not give rise to any debt deductions for the ADI in that year or any other income year. Insert this amount at B on Worksheet 28: inward investing entity (ADI)'s step 1. |
ADI equity capital is increased by amounts the ADI has made available as loans to its Australian permanent establishments through which it carries on a banking business in Australia, if these amounts do not give rise to any debt deductions for the ADI in that or any other income year; that is, dotation capital. |
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Step 1.3: Calculate the average equity capital by adding the amounts at A and B. |
Average equity capital represents the ADI equity capital attributable to the Australian permanent establishments (A), plus any debt deduction free amounts made available to the Australian permanent establishments (B). |
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Steps |
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Step 1.1: Average ADI equity capital attributable to the Australian permanent establishments through which it carries on its banking business in Australia |
(A) _____________ |
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Step 1.2: Average debt deduction free amounts made available to the Australian permanent establishments through which it carries on its banking business in Australia |
(B) _____________ |
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Step 1.3: Average equity capital (A + B) |
= ______________ |
Compare this to the ADI's minimum capital amount, which is the lesser of the safe harbour capital amount (step 2) and the arm's length capital amount (step 3).
For more information, see Worked example of calculations for an inward investing entity (ADI).