Foreign controlled Australian company
A company (except a corporate limited partnership) is a foreign controlled Australian company at a particular time if, at that time, it is an Australian entity to which any of the following apply:
- A group of 5 or fewer foreign entities (each of which holds a thin capitalisation control interest of at least 1% in the company) hold a total thin capitalisation control interest in the company of at least 50%. For example, if 3 foreign entities hold a thin capitalisation control interest in an Australian company of 20% each, totalling 60%, that company is a foreign controlled Australian company.
- A foreign entity holds a thin capitalisation control interest in the company of at least 40%, 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. For example, if a foreign entity holds a thin capitalisation control interest in an Australian company of 45%, and 11 Australian entities that are unrelated to the foreign entity and each other hold 5% each, the company is a foreign controlled Australian company. However, this test is not satisfied if, for example, the foreign entity holds a thin capitalisation control interest in the company of 45% and a single, unrelated Australian entity holds 55% and controls the company.
- A group of 5 or fewer foreign entities, either alone or with associate entities, control the company.
Despite the above, a company is not a foreign controlled Australian company at a particular time if, at that time, the exception in subsection 820-785(2) of the ITAA 1997 applies.
Foreign controlled Australian trust
A trust is a foreign controlled Australian trust at a particular time if, at that time, it is an Australian trust to which at least one of the following applies:
- A group of 5 or fewer foreign entities (each of which holds a thin capitalisation control interest in the trust of at least 1%) holds a thin capitalisation control interest of at least 50% in the Australian trust. For example, if 3 foreign residents are entitled to 30%, 10% and 10% respectively of an Australian trust's income, the trust is a foreign controlled Australian trust.
- A single foreign entity holds a thin capitalisation control interest of at least 40% in the Australian trust, and no other entity (except for an associate entity) controls the trust.
- All the following apply
- At least one of the objects or beneficiaries of the Australian trust is a foreign entity.
- The trust has made at least one distribution of income or capital to that foreign entity (directly or indirectly) during the current income year or during the preceding 2 income years.
- Australian entities hold thin capitalisation control interests of 50% or less in the trust.
- A foreign entity is in a position to control the trust.
Broadly, a foreign entity is in a position to control the Australian trust if any of the following apply:
- The foreign entity, or an associate entity of the foreign entity, can obtain the beneficial enjoyment of the trust's income or capital.
- The foreign entity, or an associate entity of the foreign entity, can control the application of the trust's income or capital.
- A trustee might reasonably be expected to act in accordance with directions of the foreign entity or an associate entity of the foreign entity.
- The foreign entity, or an associate entity of the foreign entity, can remove or appoint a trustee.
For more information on a foreign controlled Australian trust, see section 820-790 of the ITAA 1997.
Foreign controlled Australian partnership
A partnership that is not a corporate limited partnership
An Australian partnership, other than a corporate limited partnership, is a foreign controlled Australian partnership if at least one of the partners is an Australian entity and one of the following applies:
- A group of 5 or fewer foreign entities (each of which holds a thin capitalisation control interest of at least 1% in the Australian partnership) hold a thin capitalisation control interest of at least 50% in the Australian partnership, for example, where 3 foreign residents are entitled to 20% each of an Australian partnership's income.
- A single foreign entity holds a thin capitalisation control interest of at least 40% in the Australian partnership, and no other entity (except for an associate entity) controls the partnership.
For more information, see subsection 820-795(2) of the ITAA 1997.
Corporate limited partnership
An Australian corporate limited partnership is a foreign controlled Australian partnership if either of the following apply:
- A group of 5 or fewer foreign entities (each of which holds a thin capitalisation control interest of at least 1% in the Australian partnership) holds a thin capitalisation control interest of at least 50% in the Australian partnership.
- At least one of the general partners is either a foreign entity or a foreign controlled Australian entity.
For more information, see subsection 820-795(1) of the ITAA 1997.
Exception
In certain circumstances, an Australian entity may not be a foreign controlled Australian entity even though the above tests are met. This will be the case where, ignoring certain deeming rules, the actual control interest is less than 20%.
For more information, see:
- subsection 820-785(2) of the ITAA 1997 for companies
- subsection 820-790(3) of the ITAA 1997 for trusts
- subsection 820-795(3) of the ITAA 1997 for partnerships and corporate limited partnerships.
If your entity is a foreign controlled Australian entity
If the entity is a foreign controlled Australian entity, it is subject to the thin capitalisation rules. How the thin capitalisation rules apply to the entity depends on which category the entity is in. This is explained in Entity categories.
For more information about if your entity is a foreign controlled Australian entity, see section 820-780 of the ITAA 1997.