The head company of a consolidated group or MEC group can be classified as any of the following:
- a general class investor
- an outward investing financial entity (non-ADI)
- an inward investor (financial)
- an outward investing entity (ADI)
- an inward investing entity (ADI).
However, the thin capitalisation rules (except the debt deduction creation rules) will not apply where the consolidated group or MEC group passes either the:
- debt deduction test (section 820-35 of the ITAA 1997)
- assets threshold test (section 820-37 of the ITAA 1997).
There is a further exemption relating to a head company that is either a foreign controlled ADI or a foreign controlled Australian company that wholly owns a foreign controlled Australian ADI. This is discussed in more detail in Exemptions for foreign controlled consolidated groups.
How the head company is classified is determined by the nature of the entities making up the consolidated group or MEC group. Entity categories explains how individual entities are classified. If the consolidated group or MEC group contains a special purpose entity that is exempt from thin capitalisation under section 820-39 of the ITAA 1997, it is treated as not being part of that group for thin capitalisation purposes only.