Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-C - Thin capitalisation rules for inward investing financial entities (non-ADI)  

Operative provisions

SECTION 820-190   Maximum allowable debt  

820-190(1)    
The entity ' s maximum allowable debt for an income year is the greatest of the following amounts:

(a)    the *safe harbour debt amount;

(b) (Repealed by No 23 of 2024)

(c)    unless subsection (2) applies to the entity - the *worldwide gearing debt amount.

Entities that are not eligible for the worldwide gearing debt amount

820-190(2)    
This subsection applies to an entity, if:

(a)    the entity has *statement worldwide equity, or *statement worldwide assets, of nil or a negative amount; or

(b)    *audited consolidated financial statements for the entity for the income year do not exist; or

(c)    the result of applying the following formula is greater than 0.5:

	Average Australian assets of the entity
	*Statement worldwide assets of the entity for the income year

where:

average Australian assets
:

(a) of an *Australian entity - is the average value, for the statement period mentioned in subsection (3) , of all the assets of the entity, other than:

(i) any *debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity debt of the entity; or

(ii) any *equity interests or debt interests held by the entity, to the extent to which any value of the interests is all or a part of the *controlled foreign entity equity of the entity; and

(b) of a *foreign entity - is the average value, for the statement period mentioned in subsection (3) , of all the assets of the entity that are:

(i) located in Australia; or

(ii) attributable to the entity ' s *Australian permanent establishments; or

(iii) debt interests held by the entity, that were *issued by an *Australian entity and are *on issue;

(iv) equity interests held by the entity in an *Australian entity.

820-190(3)    
For the purposes of the definition of average Australian assets in subsection (2) the statement period is the period for which the *audited consolidated financial statements for the entity for the income year have been prepared.

820-190(4)    
For the purposes of the formula in paragraph (2)(c) , if:

(a)    an amount is included in *statement worldwide assets in respect of an asset; and

(b)    the asset was acquired, held or otherwise dealt with by an entity for a purpose (other than an incidental purpose) that included ensuring that subsection (2) does not apply to an entity; and

(c)    as a result of the acquisition, holding or dealing with of the asset, the amount included in statement worldwide assets exceeds the amount (including nil) that would otherwise be so included;

apply the amount of the excess to reduce statement worldwide assets (or statement worldwide assets as reduced by a previous application of this subsection).