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 F on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

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

Step 2.2: Calculate the average value, for that year, of the entity's excluded equity interests.

Insert this amount at XX on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

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

See excluded equity interests.

Step 2.3: Transfer the amount from B on Worksheet 8: Outward investing financial entity (non-ADI)'s step 1 to B on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

This is the average associate entity debt and is the same amount calculated at B on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1 (step 1.2) and can be transferred directly from there. Associate entity debt is a loan asset of the lender representing, broadly, the debt interests issued to the lender by the associate entity.

Step 2.4: Calculate the average value, for that year, of all the entity's associate entity equity.

Insert this amount at G on Worksheet 3: Outward investing financial entity (non-ADI)'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.

Step 2.5: Transfer the amount from C on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1 to C on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

This is the average value of debt lent to controlled foreign entities for which the outward investor is an Australian controller. It is the same amount calculated at C on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1 (step 1.3) and can be transferred directly from there. Controlled foreign entity debt is an asset of the lender, representing the debt interests issued to the lender by the controlled foreign entity.

Step 2.6: Calculate the average value, for that year, of all the entity's controlled foreign entity equity.

Insert this amount at H on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

This is the average value of the equity invested in controlled foreign entities for which the outward investor is an Australian controller. Controlled foreign entity equity is an asset of the investing entity.

Step 2.7: Calculate the average value, for that year, of all the entity's non-debt liabilities.

Insert this amount at J on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

 N/A

Step 2.8: Calculate the average value of the entity's zero-capital amount.

Insert this amount at ZC on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

 N/A

Step 2.9: Calculate the net Australian assets funded by debt and equity. This is the result of F − XX − B − G − C − H − J − ZC.

Insert the result at K on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

This step reduces total assets (F) by the amounts worked out in steps 2.2 to 2.8.

The amount at K represents the net Australian assets that are funded by debt and equity.

Step 2.10: Multiply the amount at K by (15 ÷ 16).

Insert the result at L on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

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

Step 2.11: Transfer the average value of the entity's zero-capital amount from step 2.7.

Insert this amount at ZC on Worksheet 3: Non-ADI financial outward investor's step 2.

The zero-capital amount was taken out at step 2.8 and is now added back on so that the total debt amount is increased by the average value of the zero-capital amount.

Step 2.12: If the entity does not have any associate entities that are outward investing financial entities (non-ADI) or, inward investing financial entities (non-ADI), insert 0 (zero) at M on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2. Otherwise, calculate the entity's average associate entity excess amount – see Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A.

Transfer the amount at M on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A to M on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

The average associate entity excess amount is, broadly, the excess borrowing capacity of any associate entities that are outward investing financial entities (non-ADI) or inward investing financial entities (non-ADI). It also recognises any premium paid for the investment in an associate entity. This is worked out in Table 11: Outward investing financial entity (non-ADI)'s step 2A and Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A at M.

If the entity does not have any associate entities that are outward investing financial entities (non-ADI) non-ADI outward investors or inward investing financial entities (non-ADI), the average associate entity excess amount is zero.

Step 2.13: Calculate the entity's total debt amount by adding the amounts at L, ZC and M.

 N/A

Step 2.1: Average assets

(F) __________

Step 2.2: Average excluded equity interests

(XX) _________

Step 2.3: Average associate entity debt from B on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1

(B) __________

Step 2.4: Average associate entity equity

(G) __________

Step 2.5: Average controlled foreign entity debt from C on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1

(C) __________

Step 2.6: Average controlled foreign entity equity

(H) __________

Step 2.7: Average non-debt liabilities

(J) __________

Step 2.8: Average zero-capital amount

(ZC) __________

Step 2.9: F − XX − B − G − C − H − J − ZC

(K) __________

Step 2.10: K × (15 ÷ 16)

(L) __________

Step 2.11: Average zero-capital amount from step 2.8

(ZC) __________

Step 2.12: Average associate entity excess from M on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A

(M) __________

Step 2.13: Total debt amount = L + ZC + M

__________

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

Insert this amount at N on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A.

This is the value, on a measurement day, of the equity the entity has invested in its associate entity.

This excludes any debt interest 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 equity interests the investing entity holds in the associate entity, excluding the value of equity interests held by the investing entity that are controlled foreign entity equity for the investing entity.

Insert this amount at P on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A.

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

This excludes the value that represents controlled foreign entity equity for 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 P from the amount at N and multiplying the result by (15 ÷ 16).

Insert the result at Q on Worksheet 4: Outward investing financial entity (non-ADI)'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 R on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A.

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

If the associate entity is an:

• outward investor, complete step 2 in Outward investing financial entity (non-ADI) for the associate entity
• inward investor, complete step 2 in Inward investor (financial) for the associate entity.

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 S on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

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

Step 2A.6: Deduct the amount at S from the amount at R.

Insert the result at T on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A.

Taking the adjusted average debt (S) away from the safe harbour debt amount (R) 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 that 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
  • no part of which forms part of the associate entity's cost-free debt capital
  • 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 by 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 U on Worksheet 4: Outward investing financial entity (non-ADI)'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 the following:

• The value of all the associate entity's equity capital.
• The value of all the debt interests issued by the associate entity that  
  • are on issue
  • no part of which forms part of the associate entity's cost-free debt capital
  • do not give rise to costs covered by paragraph 820-40(1)(a).
• The value of all 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 the result at V on Worksheet 4: Outward investing financial entity (non-ADI)'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 U by the amount at V. Insert the result at W on Worksheet 4: Outward investing financial entity (non-ADI)'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 T (the associate entity's excess capacity) by the amount at W (the proportion of equity capital attributable to the investing entity).

Insert the result at X on Worksheet 4: Outward investing financial entity (non-ADI)'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: Add the amounts at Q (premium excess amount) and X (attributable safe harbour excess amount).

Insert the result at Y on Worksheet 4: Outward investing financial entity (non-ADI)'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 Y to Z on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A. Otherwise, repeat steps 2A.1 to 2A.11 for each associate entity.

Then add all positive results at Y and insert at Z on Worksheet 4: Outward investing financial entity (non-ADI)'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 Z will be the same as the amount at Y, provided Y is positive.

If Y is negative, it is disregarded.

Step 2A.13: Calculate Z (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 Z for each measurement day and dividing by the number of measurement days.

Insert the result at M on Worksheet 3: Outward investing financial entity (non-ADI)'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

(N) __________

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

(P) __________

If P is negative, is it taken to be nil

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

(Q) __________

Q may be a negative amount

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

(R) __________

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

(S) __________

Step 2A.6: R − S

(T) __________

If T is negative, it is taken to be nil

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

(U) __________

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

(V) __________

Step 2A.9: U ÷ V

(W) __________

Step 2A.10: Attributable safe harbour excess amount (T × W)

(X) __________

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

(Y) __________

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

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

(Z) __________

Step 2A.14: The average value of the associate entity excess amount. This is the sum of results at Z divided by the number of measurement days.

= (M) __________

Transfer this amount to M on Worksheet 9: Outward investing financial entity (non-ADI)'s step 2

Step 3.1: Transfer the amount from F on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 to F on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

This is the average value of assets. This amount has already been worked out at F on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 (step 2.1) and can be transferred directly from there.

Step 3.2: Transfer the amount from XX on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 to XX on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

This is the average value of the entity's excluded equity interests. This amount has already been worked out at XX on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 (step 2.2) and can be transferred directly from there.

Step 3.3: Transfer the amount from G on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 to G on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

This is the average value of associate entity equity. This amount has already been worked out at G on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 (step 2.4) and can be transferred directly from there.

Step 3.4: Transfer the amount from C on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1 to C on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

This is the average value of controlled foreign entity debt. This amount has already been worked out at C on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1 (step 1.3 ) and can be transferred directly from there. This is also the same amount at C on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

Step 3.5: Transfer the amount from H on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 to H on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

This is the average value of controlled foreign entity equity. This amount has already been worked out at H on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 (step 2.6) and can be transferred directly from there.

Step 3.6: Transfer the amount from J on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 to J on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

This is the average value of non-debt liabilities. This amount has already been worked out at J on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2 (step 2.7) and can be transferred directly from there.

Step 3.7: Calculate the average value of the entity's on-lent amount, excluding controlled foreign entity debt.

Insert the amount at OA on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

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

Step 3.8: Calculate net Australian non-lending assets funded by debt and equity. This is the result of F − XX – G – C – H – J – OA.

Insert the result at AA on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

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

Step 3.9: Multiply the amount at AA by (3 ÷ 5).

Insert the result at BB on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

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

Step 3.10: Transfer the average value of the entity's on-lent amount from step 3.7.

Insert the amount at OA on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

This is the same amount calculated in step 3.7. This adds back the on-lent amount.

Step 3.11: Transfer the amount from B on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1 to B on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

This is the average value of associate entity debt. This amount has already been worked out at B on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1 (step 1.2) and can be transferred directly from there.

This is also the same amount at B on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2.

Step 3.12: If the entity does not have any associate entities that are outward investing financial entities (non-ADI) or inward investor (financial), insert 0 (zero) at CC on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3. Otherwise, calculate the entity's average associate entity excess amount – see Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A.

Transfer the amount at CC on Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A to CC on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3.

The associate entity excess amount is, broadly, the excess borrowing capacity of any associate entities that are outward investing financial entities (non-ADI) inward investor (financial). It also recognises any premium paid for the investment in an associate entity. This amount is worked out in Table 13: Outward investing financial entity (non-ADI)'s step 3A and Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A at CC.

If the entity does not have any associate entities, the average associate entity excess amount is zero.

Step 3.13: Calculate the entity's adjusted on-lent amount

This is the result of BB + OA – B + CC.

 N/A

Step 3.1: Average assets from F on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2

(F) __________

Step 3.2: Average excluded equity interests from XX on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2

(XX) __________

Step 3.3: Average associate entity equity from G on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2

(G) __________

Step 3.4: Average controlled foreign entity debt from C on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1

(C) __________

Step 3.5: Average controlled foreign entity equity from H on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2

(H) __________

Step 3.6: Average non-debt liabilities from J on Worksheet 3: Outward investing financial entity (non-ADI)'s step 2

(J) __________

Step 3.7: Average on-lent amount

(OA) __________

Step 3.8: F − XX − G − C − H − J − OA

(AA) __________

If AA is negative, it is taken to be zero

Step 3.9: AA × (3 ÷ 5)

(BB) __________

Step 3.10: Average on-lent amount from step 3.7

(OA) __________

Step 3.11: Average associate entity debt from B on Worksheet 2: Outward investing financial entity (non-ADI)'s step 1

(B) __________

Step 3.12: Average associate entity excess from CC on Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A

(CC) __________

Step 3.13: Adjusted on-lent amount = BB + OA − B + CC

__________

Step 3A.1: Transfer the amount at N on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A to N on Worksheet 6: Outward investing financial entity (non-ADI)'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 N on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A (step 2A.1) and can be transferred directly from there.

Step 3A.2: Transfer the amount at P on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A to P on Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A.

This is the value, on a particular measurement day, of the associate entity's equity capital attributable to the equity interests the investing entity holds in the associate entity, excluding the value that represents controlled foreign entity equity of the investing entity.

This amount has already been worked out at P on Worksheet 4: Outward investing financial entity (non-ADI)'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 P from the amount at N and multiplying the result by (3 ÷ 5).

Insert this result at DD on Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A.

 N/A

Step 3A.4: Transfer the amount at X on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A to X on Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A.

This is the attributable safe harbour excess amount on a particular measurement day.

This amount has already been worked out at X on Worksheet 4: Outward investing financial entity (non-ADI)'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 DD (premium excess amount) and X (attributable safe harbour excess amount).

Insert the result at EE on Worksheet 6: Outward investing financial entity (non-ADI)'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 EE to FF on Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A.

Otherwise, repeat steps 3A.1 to 3A.5 for each associate entity.

Then add all positive results at EE and insert at FF on Worksheet 6: Outward investing financial entity (non-ADI)'s step 3A.

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

All the positive associate entity excess amounts are added 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 FF will be the same as the amount at EE, provided EE is positive.

If EE is negative, it is disregarded.

Step 3A.7: Calculate FF (the total associate entity excess amount – steps 3A.5 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 FF for each measurement day and dividing by the number of measurement days.

Insert the result at CC on Worksheet 6: Outward investing financial entity (non-ADI)'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 N on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A

(N) __________

Step 3A.2: Associate entity's equity capital attributable to the investing entity's equity interests on a measurement day from P on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A

(P) __________

If P is negative, it is taken to be nil

Step 3A.3: Premium excess amount (N − P) × (3 ÷ 5)

(DD) _________

DD may be a negative amount

Step 3A.4: Attributable safe harbour excess amount from X on Worksheet 4: Outward investing financial entity (non-ADI)'s step 2A

(X) __________

Step 3A.5: Associate entity excess amount on a measurement day for one associate entity; that is, DD + X

(EE) __________

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

Now calculate the associate entity excess amount for all associate entities on the investing entity's other measurement days – see step 3A.7

(FF) __________

Step 3A.8: The average value of the associate entity excess amount; that is, the sum of results at FF divided by the number of measurement days

(CC) __________

Transfer this amount to CC on Worksheet 5: Outward investing financial entity (non-ADI)'s step 3