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Section D: Thin capitalisation

Last updated 11 February 2014

Question 30

This question provides us with information as to whether the thin capitalisation rules apply to you.

You may be excluded from the requirement to apply the thin capitalisation provisions if one of the following applies:

  • you and your relevant associates have total debt deductions of $250,000 or less
  • you satisfy section 820-37 of the ITAA 1997.

If the thin capitalisation rules applied to you, answer Yes at A item 30.

Find out more

For more information about the thin capitalisation rules, see the Thin capitalisation guides.

Question 31

This question is relevant if you are an Australian resident company that has elected under subdivision 820-FB of the ITAA 1997 to treat their qualifying branch operations as part of a consolidated group, multiple entry consolidated (MEC) group or single company for thin capitalisation purposes.

If you carry on qualifying Australian branch operations that your related Australian consolidated group, MEC group or single company has elected under subdivision 820-FB of the ITAA 1997 to treat as part of itself for thin capitalisation purposes, you will not be required to complete the remaining thin capitalisation questions. This is because the questions must be completed in the return of the head company or the single company on the basis of including your branch operations.

If an Australian resident company has elected under subdivision 820-FB of the ITAA 1997 to treat your qualifying Australian branch operations as part of its consolidated group, MEC group or single company for thin capitalisation purposes, answer Yes at A item 31 and write the ABN of the electing Australian company at B item 31 and then go to question 40.

If you do carry on qualifying Australian branch operations that are not treated as part of a consolidated group, MEC group or single company by reason of the operation of subdivision 820-FB, you must complete the following thin capitalisation questions for the branch operations.

Question 32

This question ascertains your thin capitalisation entity type at the end of the year.

The thin capitalisation rules apply differently depending on an entity's type. To work out how the thin capitalisation rules apply to a particular entity we need to know which category the entity belongs to.

If your type of thin capitalisation entity changed during the year, you only need to complete section D for the type of thin capitalisation entity you were at the end of the income year or relevant period.

To complete this question you need to ascertain your entity code from the table below.

At A write the code which represents the type of thin capitalisation entity you are at the end of the income year or relevant period. If you do not know what type of entity you are, refer to the relevant provisions in Division 820 of the ITAA 1997.

Non-authorised deposit-taking institution (Non-ADI) 

Code Type

1

Outward investor (general) under subsections 820-85(2) and 820-583(2)

2

Outward investor (financial) under subsections 820-85(2) and 820-583(3)

3

Inward investment vehicle (general) under subsections 820-185(2) and 820-583(5)

4

Inward investment vehicle (financial) under subsections 820-185(2), 820-583(6) and 820-609(6)

5

Inward investor (general) under subsection 820-185(2)

6

Inward investor (financial) under subsection 820-185(2)

ADI

Code Type

7

Outward investing entity (ADI) under subsections 820-300(2), 820-583(7), 820-587 and 820-609

8

Inward investing entity (ADI) under subsections 820-395(2) and 820-609(4)

Question 33

This question ascertains if you have changed your entity status from ‘general' to ‘financial’ during the income year. The thin capitalisation provisions categorise non-ADI entities as either a kind of 'financial entity' (covered by code 2, 4 or 6) or a kind of 'general entity' (covered by code 1, 3 or 5). See the above table of thin capitalisation entity types.

If you have changed your entity type for thin capitalisation from ‘general’ to ‘financial’ during the income year, answer Yes at A item 33.

Find out more

For more information about the different types of thin capitalisation entities, see the provisions in the table of thin capitalisation entity types.

Question 34

This question seeks to ascertain your method for calculating average values.

At A item 34 write the code from the table below that represents the type of averaging method you used for calculating 'average values'.

Code Averaging method used

1

Opening/closing balances method under section 820-635

2

Three measurement days method under section 820-640

3

Frequent measurement (quarterly) method under subsection 820645(2)

4

Frequent measurement (regular intervals) method under subsection 820645(4)
Find out more

For more information about these methods or 'average values', see Division 820 of the ITAA 1997.

Question 35

This question requires information for all thin capitalisation entity types.

The dollar amounts or values asked for in this question are all based on your tax records.

You must complete all labels. However, if you have written code 7 or 8 (ADI) at A item 32 you do not need to complete D item 35.

At A item 35 write the total amount of your debt deductions for the income year that are allowable before applying the thin capitalisation provisions in Division 820 of the ITAA 1997.

At B item 35 write the amount of your debt deductions for any debt interest held or ultimately funded (via a back-to-back arrangement) by a non-resident person who is either a controller or majority owner of you, or is controlled or majority owned by the same persons as you (this includes majority ownership through other companies, partnerships or trusts). If none of the debt deductions shown at A item 35 were for debt interests held or ultimately funded by such non-resident entities, write '0' (zero) at B.

At C item 35 write the amount of your debt deductions that are disallowed for the income year under the following sections if you have written:

  • code 1 or 2 at A item 32, the amount disallowed under sections 820-115 and 820-120
  • code 3, 4, 5 or 6 at A item 32, the amount disallowed under sections 820-220 and 820-225
  • code 7 at A item 32, the amount disallowed under sections 820-325 and 820-330
  • code 8 at A item 32, the amount disallowed under sections 820-415 and 820-420.

At D item 35 write the amount of your adjusted average debt for the income year worked out under the following sections if you have written:

  • code 1 or 2 at A item 32, under subsection 820-85(3)
  • code 3, 4, 5 or 6 at A item 32, under subsection 820-185(3).

Question 36

This question requires information if you were an authorised deposit taking institution (ADI).

If you were an ADI for the income year and have written code 7 or 8 (ADI) at A item 32, answer Yes at A item 36 and complete the required fields.

If you have written code 1, 2, 3, 4, 5 or 6 (non-ADI) at A item 32 answer No at A.

If you have written code 7 (outward investing entity ADI) at A item 32 write the following amounts:

  • At B, the amount of your adjusted average equity capital worked out under subsection 820300(3).
  • At C, write your safe harbour capital amount determined under section 820310. If you have calculated a safe harbour capital amount and relied on the arm’s length method or world wide capital method, write the amount you calculated for the safe harbour capital amount at C.
  • At D, write the amount by which your minimum capital amount determined under section 820305 exceeds the amount of your adjusted average equity capital written at B.
  • At E, the amount of the average value of risk-weighted assets that you are required to include in step 1 in section 820310 (after excluding the value of risk-weighted assets attributable to the assets specified in paragraphs (a), (b) and (c) of step 1 in section 820310).
  • At F, the amount of ADI equity capital attributable to your overseas permanent establishment(s) that you were required, under paragraph 820300(3)(a), to subtract in determining the amount of adjusted average equity capital you had to write at B item 36.
  • At G, the amount of the average value of your 'total risk-weighted assets', used to work out your Tier 1 capital reported to APRA for your ADI group, attributable to your overseas permanent establishment(s) that you were required, under paragraph (a) of step 1 in section 820310, to subtract in determining the amount of the average value of risk-weighted assets you had to write at E item 36.
  • At H, the amount of the average value of all your controlled foreign entity equity, within the meaning of section 820890, that you were required, under paragraph 820300(3)(b), to subtract in determining the amount of adjusted average equity capital you had to write at B item 36.
  • At I, the amount of tier 1 prudential capital deductions that you are required to include in step 3 in section 820310.

If you have written code 8 (inward investing entity ADI) at A item 32 write the following amounts:

  • At B, the amount of the average equity capital worked out under subsection 820-395(3).
  • At C, your safe harbour capital amount determined under section 820405. If you have calculated a safe harbour capital amount and relied on the arm’s length method, write the amount you calculated for the safe harbour capital amount at C.
  • At D, write the amount by which your minimum capital amount determined under section 820400 exceeds the amount of your average equity capital written at B.
  • At J, the amount of the average value of all your risk weighted assets attributable to your Australian permanent establishments (but after excluding those assets which are attributable to offshore banking activities) that you are required to include in step 1 of section 820405.
  • At K, the amount of the average value of the total amounts you have made available to your Australian permanent establishments, that will never give rise to any debt deductions, that you are entitled to include, under paragraph 820395(3)(b), in working out the amount of average equity capital you had to write at B item 36.

Question 37

This question requires information if you were not an authorised deposit taking institution (ADI).

If you have written code 7 or 8 (ADI) at A item 32, answer No at A.

If you were not an ADI for the income year and have written code 1, 2, 3, 4, 5 or 6 (non-ADI) at A item 32, answer Yes at A and complete the following.

At B, write the amount of the average value of your assets required to be included in step 1 of the following sections if you have written:

  • code 1 at A item 32, under section 820-95
  • code 2 at A item 32, under section 820-100
  • code 3 at A item 32, under section 820-195
  • code 4 at A item 32, under section 820-200
  • code 5 at A item 32, under section 820-205
  • code 6 at A item 32, under section 820-210.

At C, write the total amount by which your assets have been revalued for thin capitalisation purposes for the income year (this is to be included in the amount you write at B item 37).

At D, if you have written:

  • code 1 or 2 at A item 32, write your safe harbour debt amount determined under section 820-95 (code 1) or section 820-100 (code 2). If you have calculated a safe harbour debt amount and relied on the arm’s length method or world wide gearing method, write the amount you calculated for the safe harbour debt amount at D, otherwise leave this blank.
  • code 3, 4, 5, or 6 at A item 32, write your safe harbour debt amount determined under section 820-195 (code 3), section 820-200 (code 4), section 820-205 (code 5), or section 820-210 (code 6). If you have calculated a safe harbour debt amount and relied on the arm’s length method write the amount you calculated for the safe harbour debt amount at D, otherwise leave this blank.

At E, write the amount by which your adjusted average debt written at D item 35 exceeds your maximum allowable debt determined under section 820-90 (codes 1 and 2) or section 820-190 (codes 3, 4, 5 and 6).

At F, write the amount of the average value of your non-debt liabilities, as defined in subsection 995-1(1), which you are required to subtract in determining your safe harbour debt amount as follows if you have written:

  • code 1 at A item 32, subtracted in step 6 of section 820-95
  • code 2 at A item 32, subtracted in step 6 of subsection 820-100(2)
  • code 3 at A item 32, subtracted in step 4 of section 820-195
  • code 4 at A item 32, subtracted in step 4 of subsection 820-200(2)
  • code 5 at A item 32, subtracted in step 4 of section 820-205
  • code 6 at A item 32, subtracted in step 4 of subsection 820-210(2).

At G, write the amount of the average value of your associate entity debt, within the meaning of section 820-910, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

  • code 1 at A item 32, subtracted in step 2 of section 820-95
  • code 2 at A item 32, subtracted in step 2 of subsection 820-100(2)
  • code 3 at A item 32, subtracted in step 2 of section 820-195
  • code 4 at A item 32, subtracted in step 2 of subsection 820-200(2)
  • code 5 at A item 32, subtracted in step 2 of section 820-205
  • code 6 at A item 32, subtracted in step 2 of subsection 820-210(2).

At H, write the amount of the average value of your associate entity equity, within the meaning of section 820-915, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

  • code 1 at A item 32, subtracted in step 3 of section 820-95
  • code 2 at A item 32, subtracted in step 3 of subsection 820-100(2)
  • code 3 at A item 32, subtracted in step 3 of section 820-195
  • code 4 at A item 32, subtracted in step 3 of subsection 820-200(2)
  • code 5 at A item 32, subtracted in step 3 of section 820-205
  • code 6 at A item 32, subtracted in step 3 of subsection 820-210(2).

At I, write the amount of the average value of your associate entity excess amount, within the meaning of section 820-920, which you are required to add in working out your safe harbour debt amount as follows if you have written:

  • code 1 at A item 32, added in step 8 of section 820-95
  • code 2 at A item 32, added in step 10 of subsection 820-100(2)
  • code 3 at A item 32, added in step 6 of section 820-195
  • code 4 at A item 32, added in step 8 of subsection 820-200(2)
  • code 5 at A item 32, added in step 6 of section 820-205
  • code 6 at A item 32, added in step 8 of subsection 820-210(2).

At J, write the amount of the average value of your excluded equity interests, within the meaning of section 820-946, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

  • code 1 at A item 32, subtracted in step 1A of section 820-95
  • code 2 at A item 32, subtracted in step 1A of subsection 820-100(2)
  • code 3 at A item 32, subtracted in step 1A of section 820-195
  • code 4 at A item 32, subtracted in step 1A of subsection 820-200(2)
  • code 5 at A item 32, subtracted in step 1A of section 820-205
  • code 6 at A item 32, subtracted in step 1A of subsection 820-210(2).

If you have written code 2, 4 or 6 (financial) at A item 32, then at K write the average value of your zero capital amount, within the meaning of section 820-942, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

  • code 2 at A item 32, subtracted in step 7 of subsection 820-100(2)
  • code 4 at A item 32, subtracted in step 5 of subsection 820-200(2)
  • code 6 at A item 32, subtracted in step 5 of subsection 820-210(2).

If you have written code 2, 4 or 6 (financial) at A item 32, then at L write the average value of your on-lent amount, as defined in subsection 995-1(1), which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

  • code 2 at A item 32, subtracted in step 6 of subsection 820-100(3)
  • code 4 at A item 32, subtracted in step 4 of subsection 820-200(3)
  • code 6 at A item 32, subtracted in step 4 of subsection 820-210(3).

If you have written code 1 or 2 (outward investor) at A item 32, then at M write the average value of all your controlled foreign entity equity, within the meaning of section 820-890, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

  • code 1 at A item 32, subtracted in step 5 of subsection 820-95
  • code 2 at A item 32, subtracted in step 5 of subsection 820-100(2).

If you have written code 1 or 2 (outward investor) at A item 32, then at N write the average value of all your controlled foreign entity debt, within the meaning of section 820-885, which you are required to subtract in working out your safe harbour debt amount as follows if you have written:

  • code 1 at A item 32, subtracted in step 4 of subsection 820-95
  • code 2 at A item 32, subtracted in step 4 of subsection 820-100(2).

Question 38

If you relied on an arm's length debt or capital amount calculated under Division 820 of the ITAA 1997, answer Yes at A and read on. Otherwise go to question 39.

Write at B the arm's length debt amount or the arm's length capital amount determined under the following section.

Code you wrote at A item 32 Section

1 or 2

820-105

3, 4, 5 or 6

820-215

7

820-315

8

820-410

Question 39

This question requires information if you have relied on the worldwide gearing debt/capital amount.

You must answer Yes at A item 39 and complete all the applicable labels if you have written:

  • codes 1 or 2 (outward investor (non-ADI)) at A item 32 and you rely on the worldwide gearing debt amount as calculated in section 820-110
  • code 7 (outward investing entity (ADI)) at A item 32 and you rely on the worldwide capital amount as calculated in section 820-320.

If you have written codes 3, 4, 5, 6 or 8 at A item 32, you do not need to complete this question.

If you have relied on worldwide gearing debt/capital tests, answer Yes at A item 39 and complete the relevant labels.

If you have written code 7 (outward investing entity (ADI)) at A item 32 write:

  • At B, the worldwide group capital ratio worked out in accordance with subsection 820-320(3). For example, if the amount worked out under step 1 of the method statement in subsection 820-320(3) is 5.42% of the amount worked out under step 2, the fractional whole number you must write at B is 0.05420.
  • At C, your worldwide capital amount worked out under subsection 820320(2).

If you have written code 1 or 2 (outward investor (non-ADI)) at A item 32 write:

  • At D, the amount of your worldwide debt, as defined in subsection 9951(1), used to calculate the result of step 1 in the following subsections if you have written:
    • code 1 at A item 32, step 1 in subsection 820-110(1)
    • code 2 at A item 32, step 1 in subsection 820-110(2).
     
  • At E, the amount of your worldwide equity, as defined in subsection 9951(1), used to calculate the result of step 1 in the following subsections if you have written:
    • code 1 at A item 32, step 1 in subsection 820-110(1)
    • code 2 at A item 32, step 1 in subsection 820-110(2).
     
  • At F, your worldwide gearing debt amount worked out under the following subsections if you have written:
    • code 1 at A item 32, under subsection 820-110(1)
    • code 2 at A item 32, under subsection 820-110(2).
     

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