Steps 2 and 3: Calculate the safe harbour debt amount

Step 2.1: Calculate the average value, for the income year, of all the entity's assets.

Insert this amount at E on Worksheet 11: Inward investment vehicle (financial)'s step 2.

The first step is to work out the average value of the entity's assets.

Step 2.1A: Calculate the average value of the entity's excluded equity interest for that year.

Insert this amount at MM on Worksheet 11: Inward investment vehicle (financial)'s step 2.

Certain short-term equity interests reduce the safe harbour debt amount for integrity reasons.

See excluded equity interests.

Step 2.2: Transfer the amount from B on Worksheet 10: Inward investment vehicle (financial)'s step 1 to B on Worksheet 11: Inward investment vehicle (financial)'s step 2.

This is the average associate entity debt and is the same amount calculated at B on Worksheet 10: Inward investment vehicle (financial)'s step 1 (step 1.2) and can be transferred directly in from there. Associate entity debt is a loan asset of the lender that broadly represents the debt interests issued to the lender by the associate entity.

Step 2.3: Calculate the average value, for that year, of all the entity's associate entity equity.

Insert this amount at F on Worksheet 11: Inward investment vehicle (financial)'s step 2.

Broadly, associate entity equity is the sum of the equity invested in, and interest-free loans granted to, associate entities.

Associate entity equity is an asset of the investing entity and the value is what the investing entity has valued its investment at under the accounting standards.

Step 2.4: Calculate the average value, for that year, of all the entity's non-debt liabilities.

Insert this amount at G on Worksheet 11: Inward investment vehicle (financial)'s step 2.

 N/A

Step 2.5: Calculate the average value of the entity's zero-capital amount.

Insert this amount at ZC on Worksheet 11: Inward investment vehicle (financial)'s step 2.

 N/A

Step 2.6: Calculate net Australian assets funded by debt and equity. This is the result of E − MM − B − F − G − ZC.

Insert the result at H on Worksheet 11: Inward investment vehicle (financial)'s step 2.

This step reduces total assets E by the amounts worked out in steps 2.2 to 2.5. The amount at H represents the net Australian assets funded by debt and equity.

Step 2.7: Multiply the amount at H by (15 ÷ 16).

Insert the result at J on Worksheet 11: Inward investment vehicle (financial)'s step 2.

Multiplying the amount at H (net assets) by (15 ÷ 16) reflects the debt to equity ratio of 15:1.

Step 2.8: Add back the average value of the zero-capital amount from step 2.5.

Insert this amount at ZC on Worksheet 11: Inward investment vehicle (financial)'s step 2.

The zero-capital amount was taken out at step 2.6 and is now added back so that the total debt amount is increased by the average value of the zero-capital amount.

Step 2.9: If the entity does not have any associate entities that are non-ADIs and subject to the thin capitalisation rules, insert 0 (zero) at K on Worksheet 11: Inward investment vehicle (financial)'s step 2. Otherwise, calculate the entity's average associate entity excess amount (see Worksheet 12: Inward investment vehicle (financial)'s step 2A).

Transfer the amount at K on Worksheet 12: Inward investment vehicle (financial)'s step 2A and insert at K on Worksheet 11: Inward investment vehicle (financial)'s step 2.

Broadly the average associate entity excess amount is the excess borrowing capacity of any associate entity that is either a non-ADI inward investment vehicle or a non-ADI inward investor. It also recognises any premium paid for the investment in an associate entity. This is worked out in step 2A (K on Worksheet 12: Inward investment vehicle (financial)'s step 2A).

If the entity does not have any associate entities that are non-ADIs and subject to the thin capitalisation rules, this amount is zero.

Step 2.10: Calculate the entity's total debt amount by adding the amounts at J, ZC and K.

 N/A

Step 2.1: Average assets

(E) _____________

Step 2.1A: Average excluded equity interests

(MM) ____________

Step 2.2: Average associate entity debt from B on Worksheet 10: Inward investment vehicle (financial)'s step 1

(B) _____________

Step 2.3: Average associate entity equity

(F) _____________

Step 2.4: Average non-debt liabilities

(G) _____________

Step 2.5: Average zero-capital amount

(ZC) _____________

Step 2.6: E − MM − B − F − G − ZC

(H) _____________

If H is negative, it is taken to be zero.

Step 2.7: H × (15 ÷ 16)

(J) ______________

Step 2.8: Average zero-capital amount from step 2.5

(ZC) _____________

Step 2.9: Average associate entity excess from K on Worksheet 12: Inward investment vehicle (financial)'s step 2A

(K) _____________

Step 2.10: Total debt amount (J + ZC + K)

=_____________

Step 2A.1: Calculate, on a particular measurement day, the value of the entity's associate entity equity attributable to the associate entity, less the value of any debt interests issued to the investing entity by the associate entity.

Insert this amount at L on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

This is the value, on a measurement day, of the equity the entity has invested in its associate entity. This excludes debt interests that may be included in associate entity equity.

Step 2A.2: Calculate, on the measurement day, the value of the associate entity's equity capital attributable to the entity, less the value of equity interests held by the investing entity that are controlled foreign entity equity for the investing entity.

Insert this amount at M on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

This is the value, on a measurement day, of the associate entity's equity capital attributable to the investing entity.

This is measured by the associate entity in accordance with the accounting standards.

Step 2A.3: Calculate the premium excess amount by deducting the amount at M from the amount at L and multiplying the result by (15 ÷ 16).

Insert the result at N on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

 N/A

Step 2A.4: Calculate the associate entity's safe harbour debt amount on the measurement day as if the period consisted of one day only.

Insert this amount at P on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

The safe harbour debt amount must be calculated for the associate entity on a measurement day.

Step 2A.5: Calculate, on the measurement day, the value of the associate entity's adjusted average debt as if the period consisted of one day only.

Insert this amount at Q on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

You must also work out the associate entity's adjusted average debt on a measurement day.

Step 2A.6: Deduct the amount at Q from the amount at P.

Insert the result at R on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

Deducting the adjusted average debt (Q) from the safe harbour debt amount (P) gives the associate entity's excess borrowing capacity on a measurement day. If the associate entity has exceeded its safe harbour debt amount, this amount will be negative and is treated as zero.

Step 2A.7: Calculate, on the measurement day, the sum of all of the following:

• The value of the associate entity's equity capital attributable to the investing entity.
• The value of the debt interests issued to the investing entity by the associate entity
  • that are on issue
  • of which no part forms part of the associate entity's cost-free debt capital
  • that do not give rise to costs covered by paragraph 820-40(1)(a).
• The value of the debt interests issued to the investing entity by the associate entity that    
  • are on issue
  • give rise to costs covered in paragraph 820-40(1)(a) but those costs are not deductible from the associate entity's assessable income in any income year.

Insert the result at S on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

This works out the value of the associate entity's equity capital (including certain debt interests) attributable to the investing entity on a measurement day.

Step 2A.8: Calculate, on the measurement day, the sum of all of the value of all the following:

• The associate entity's equity capital.
• The debt interests issued by the associate entity    
  • that are on issue
  • of which no part forms part of the associate entity's cost-free debt capital
  • that do not give rise to costs covered by paragraph 820-40(1)(a).
• The debt interests issued by the associate entity that  
  • are on issue
  • give rise to costs covered by paragraph 820-40(1)(a) but those costs are not deductible from the associate entity's assessable income in any income year.

Insert this amount at T on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

This works out the value of the associate entity's total equity capital (including certain debt interests) on a measurement day.

Step 2A.9: Divide the amount at S by the amount at T. Insert the result at U on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

This works out the proportion of the associate entity's equity capital attributable to the investing entity on a measurement day.

Step 2A.10: Calculate the entity's attributable safe harbour excess amount by multiplying the amount at R (the associate entity's excess capacity) by the amount at U (the proportion of equity capital attributable to the investing entity). Insert the result at V on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

This applies the proportion worked out in step 2A.9 to the associate entity's excess borrowing capacity to work out the amount of that excess capacity that can be attributed to the investing entity.

Step 2A.11: Calculate the entity's associate entity excess amount by adding the amounts at N (premium excess amount) and V (attributable safe harbour excess amount).

Insert the result at W on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

This is the associate entity excess amount for a single associate entity on a measurement day of the investing entity.

Step 2A.12: If the entity has only one associate entity, transfer any positive amount at W to X on Worksheet 12: Inward investment vehicle (financial)'s step 2A. Otherwise, repeat steps 2A.1 to 2A.11 for each associate entity.

Then add all positive results at W and insert at X on Worksheet 12: Inward investment vehicle (financial)'s step 2A.

The associate entity excess amount must be worked out for each associate entity on a measurement day.

Add all the positive associate entity excess amounts together to get the total associate entity excess amount on any particular measurement day.

If the entity has only one associate entity, the amount at W will be the same as the amount at X, provided X is positive. If X is negative, it is disregarded.

Step 2A.13: Calculate X (the total associate entity excess amount – steps 2A.1 to 2A.12) on each other measurement day.

The associate entity excess amount for all associate entities is calculated on each of the investing entity's measurement days.

Step 2A.14: Calculate the entity's average associate entity excess amount by adding the results at X for each measurement day and dividing by the number of measurement days.

Insert the result at K on Worksheet 11: Inward investment vehicle (financial)'s step 2.

The results are added together and divided by the number of measurement days to get the average associate entity excess amount.

Step 2A.1: Investing entity's associate entity equity on a measurement day.

(L) _____________

Step 2A.2: Associate entity's equity capital attributable to investing entity on a measurement day.

(M) _____________

If M is negative it is taken to be nil

Step 2A.3: Premium excess amount
(L − M) × (15 ÷ 16)

(N) ____________

N may be a negative amount

Step 2A.4: Associate entity's safe harbour debt amount on a measurement day

(P) _____________

Step 2A.5: Associate entity's adjusted average debt on a measurement day.

(Q) _____________

Step 2A.6: P − Q

(R) _____________

If R is negative, it is taken to be zero

Step 2A.7: Associate entity's equity capital attributable to investing entity on a measurement day.

(S) _____________

Step 2A.8: Associate entity's total equity capital on a measurement day.

(T) _____________

Step 2A.9: S ÷ T

(U) _____________

Step 2A.10: Attributable safe harbour excess amount (R × U).

(V) ____________

Step 2A.11: Associate entity excess amount on a measurement day for one associate entity (N + V).

(W) _____________

Step 2A.12: Associate entity excess amount on a measurement day for all associate entities (the sum of positive results at W).

Now calculate the associate entity excess amount for all associate entities on the investing entity's other measurement days, see step 2A.13.

(X) _____________

Step 2A.14: The average value of the associate entity excess amount (the sum of results at X divided by the number of measurement days).

= (K) ____________

Transfer this amount to K on Worksheet 11: Inward investment vehicle (financial)'s step 2.

Step 3.1: Transfer the amount from E on Worksheet 11: Inward investment vehicle (financial)'s step 2 to E on Worksheet 13: Inward investment vehicle (financial)'s step 3.

This is the average value of assets. This amount has already been worked out at E on Worksheet 11: Inward investment vehicle (financial)'s step 2 (step 2.1) and can be transferred directly from there.

Step 3.2: Transfer the amount from MM on Worksheet 11: Inward investment vehicle (financial)'s step 2 to MM on Worksheet 13: Inward investment vehicle (financial)'s step 3.

This is the average value of the entity's excluded equity interests. This amount has already been worked out at MM on Worksheet 11: Inward investment vehicle (financial)'s step 2 (step 2.1A) and can be transferred directly from there.

Step 3.3: Transfer the amount from F on Worksheet 11: Inward investment vehicle (financial)'s step 2 to F on Worksheet 13: Inward investment vehicle (financial)'s step 3.

This is the average value of associate entity equity. This amount has already been worked out at F on Worksheet 11: Inward investment vehicle (financial)'s step 2 (step 2.3) and can be transferred directly from there.

Step 3.4: Transfer the amount from G on Worksheet 11: Inward investment vehicle (financial)'s step 2 to G on Worksheet 13: Inward investment vehicle (financial)'s step 3.

This is the average value of non-debt liabilities. This amount has already been worked out at G on Worksheet 11: Inward investment vehicle (financial)'s step 2 (step 2.4) and can be transferred directly from there.

Step 3.5: Calculate the average value of the entity's on-lent amount.

Insert the amount at OA on Worksheet 13: Inward investment vehicle (financial)'s step 3.

This reduces Australian assets by the value of the entity's on-lending business.

Step 3.6: Calculate the net Australian non-lending assets funded by debt and equity.

This is the result of E − MM − F − G − OA.

Insert the result at Y on Worksheet 13: Inward investment vehicle (financial)'s step 3.

The amount at Y represents the net Australian non-lending assets funded by debt and equity.

Step 3.7: Multiply the amount at Y by (3 ÷ 5).

Insert the result at Z on Worksheet 13: Inward investment vehicle (financial)'s step 3.

Multiplying the amount at Y by (3 ÷ 5) reflects the debt to equity ratio of 1.5:1 applied to the non-lending business.

Step 3.8: Transfer the average value of the entity's on-lent amount from step 3.4.

Insert the amount at OA on Worksheet 13: Inward investment vehicle (financial)'s step 3.

This is the same amount calculated in step 3.4.

This adds back the on-lent amount.

Step 3.9: Transfer the amount from B on Worksheet 10: Inward investment vehicle (financial)'s step 1 to B on Worksheet 13: Inward investment vehicle (financial)'s step 3.

This is the average value of associate entity debt. This amount has already been worked out at B on Worksheet 10: Inward investment vehicle (financial)'s step 1 (step 1.2 ) and can be transferred directly from there.

This is also the same amount at B on Worksheet 11: Inward investment vehicle (financial)'s step 2.

Step 3.10: If the entity does not have any associate entities that are non-ADIs and subject to the thin capitalisation rules, insert 0 (zero) at AA on Worksheet 13: Inward investment vehicle (financial)'s step 3. Otherwise, calculate the entity's average associate entity excess amount – see Worksheet 14: Inward investment vehicle (financial)'s step 3A.

Transfer the amount at AA on Worksheet 14: Inward investment vehicle (financial)'s step 3A to AA on Worksheet 13: Inward investment vehicle (financial)'s step 3.

Broadly, the associate entity excess amount is the excess borrowing capacity of any associate entity that is either an inward investment vehicle (financial) or an inward investor (financial). It also recognises any premium paid for the investment in an associate entity. This amount is worked out in step 3A at AA on Worksheet 14: Inward investment vehicle (financial)'s step 3A.

If the entity does not have any associate entities that are non-ADIs and subject to the thin capitalisation rules, the average associate entity excess amount is zero.

Step 3.11: Calculate the entity's adjusted on-lent amount. This is Z + OA − B + AA.

Step 3.1: Average assets from E on Worksheet 11: Inward investment vehicle (financial)'s step 2

(E) _____________

Step 3.2: Average excluded equity interests from MM on Worksheet 11: Inward investment vehicle (financial)'s step 2

(MM) ____________

Step 3.3: Average associate entity equity from F on Worksheet 11: Inward investment vehicle (financial)'s step 2

(F) _____________

Step 3.4: Average non-debt liabilities from G on Worksheet 11: Inward investment vehicle (financial)'s step 2

(G) _____________

Step 3.5: Average on-lent amount

(OA) ____________

Step 3.6: E − MM − F − G − OA

(Y) _____________

If Y is negative, it is taken to be zero.

Step 3.7: Y × (3 ÷ 5)

(Z) _____________

Step 3.8: Average on-lent amount from step 3.4

(OA) ____________

Step 3.9: Average associate entity debt from B on Worksheet 10: Inward investment vehicle (financial)'s step 1

(B) _____________

Step 3.10: Average associate entity excess from AA on Worksheet 14: Inward investment vehicle (financial)'s step 3A

(AA) ____________

Step 3.11: Adjusted on-lent amount (Z + OA − B + AA)

= _____________

Step 3A.1: Transfer the amount at L on Worksheet 12: Inward investment vehicle (financial)'s step 2A to L on Worksheet 14: Inward investment vehicle (financial)'s step 3A.

This is the value, on a particular measurement day, of the associate entity equity attributable to the associate entity, excluding debt interests. This amount has already been worked out at L on Worksheet 12: Inward investment vehicle (financial)s step 2A (step 2A.1) and can be transferred directly from there.

Step 3A.2: Transfer the amount at M on Worksheet 12: Inward investment vehicle (financial)'s step 2A to M on Worksheet 14: Inward investment vehicle (financial)'s step 3A.

This is the value, on a particular measurement day, of the associate entity's equity capital attributable to the investing entity. This amount has already been worked out at M on Worksheet 12: Inward investment vehicle (financial)'s step 2A (step 2A.2) and can be transferred directly from there.

Step 3A.3: Calculate the premium excess amount by deducting the amount at M from the amount at L and multiplying the result by (3 ÷ 5).

Insert this result at BB on Worksheet 14: Inward investment vehicle (financial)s step 3A.

 N/A

Step 3A.4: Transfer the amount at V on Worksheet 12: Inward investment vehicle (financial)s step 2A to V on Worksheet 14: Inward investment vehicle (financial)'s step 3A.

This is the attributable safe harbour excess amount on a particular measurement day. This amount has already been worked out at V on Worksheet 12: Inward investment vehicle (financial)'s step 2A (step 2A.10) and can be transferred directly from there.

Step 3A.5: Calculate the entity's associate entity excess amount by adding the amounts at BB (premium excess amount) and V (attributable safe harbour excess amount).

Insert the result at CC on Worksheet 14: inward investment vehicle (financial)'s step 3A.

This is the associate entity excess amount for a single associate entity on a measurement day of the investing entity.

Step 3A.6: If the entity has only one associate entity, transfer any positive amount at CC to DD on Worksheet 14: Inward investment vehicle (financial)'s step 3A. Otherwise, repeat steps 3A.1 to 3A.5 for each associate entity. Then add all positive results at CC and insert at DD on Worksheet 14: Inward investment vehicle (financial)'s step 3A.

The associate entity excess amount must be worked out for each relevant associate entity on a measurement day.

Add all the positive associate entity excess amounts to get the total associate entity excess amount on any particular measurement day.

If the entity has only one relevant associate entity, the amount at DD will be the same as the amount at CC, provided DD is positive. If DD is negative, it is disregarded.

Step 3A.7: Calculate DD (the total associate entity excess amount, see steps 3A.1 to 3A.6) on each other measurement day.

The associate entity excess amount is calculated on each of the investing entity's measurement days.

Step 3A.8: Calculate the entity's average associate entity excess amount by adding the results at DD for each measurement day and divide by the number of measurement days.

Insert the result at AA on Worksheet 14: Inward investment vehicle (financial)'s step 3A.

The results are added together and divided by the number of measurement days to get the average associate entity excess amount.

Step 3A.1: Investing entity's associate entity equity on a measurement day from L on Worksheet 12: Inward investment vehicle (financial)'s step 2A

(L) ____________

Step 3A.2: Associate entity's equity capital attributable to investing entity on a measurement day from M on Worksheet 12: Inward investment vehicle (financial)'s step 2A

(M) ___________

If M is negative it is taken to be nil

Step 3A.3: Premium excess amount
(L − M) × (3 ÷5)

(BB) __________

BB may be a negative amount

Step 3A.4: Attributable safe harbour excess amount from V on Worksheet 12: Inward investment vehicle (financial)'s step 2A

(V) ____________

Step 3A.5: Associate entity excess amount on a measurement day for one associate entity (BB + V)

(CC) __________

Step 3A.6: Associate entity excess amount on a measurement day for all associate entities (the sum of positive results at CC)

(DD) __________

Calculate the associate entity excess amount for all associate entities on the investing entity's other measurement days (step 3A.7)

Step 3A.8: The average value of the associate entity excess amount (the sum of results at DD divided by the number of measurement days)

=(AA) ________

Transfer this amount to AA on Worksheet 13: Inward investment vehicle (financial)'s step 3