Treasury Laws Amendment (Making Multinationals Pay Their Fair Share - Integrity and Transparency) Act 2024 (23 of 2024)
Schedule 2 Thin capitalisation
Part 1 Amendments
Income Tax Assessment Act 1997
33 Subsections 820-85(1) and (2)
Repeal the subsections, substitute:
Thin capitalisation rule
(1A) Subsection (1) applies if:
(a) an entity is an *outward investing financial entity (non-ADI) (see subsection (2)) for all of an income year; and
(b) either:
(i) the entity has made a choice under subsection (2C) in relation to the income year; or
(ii) otherwise - the entity's *adjusted average debt (see subsection (3)) for the income year exceeds its *maximum allowable debt (see section 820-90) for the income year.
Note: This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $2 million or less, see section 820-35.
(1) This subsection disallows:
(a) if paragraph (1A)(b)(i) applies - all or part of the entity's *debt deductions for the income year (to the extent that they are not attributable to an *overseas permanent establishment of the entity); or
(b) if paragraph (1A)(b)(ii) applies - all or a part of each debt deduction of the entity for the income year (to the extent that it is not attributable to an overseas permanent establishment of the entity).
Note 1: To work out the amount to be disallowed, see section 820-115.
Note 2: For the rules that apply to an entity that is an outward investing financial entity (non-ADI) for only a part of an income year, see section 820-120 in conjunction with subsection (2) of this section.
Note 3: A consolidated group or MEC group may be an outward investing financial entity (non-ADI) to which this Subdivision applies: see Subdivisions 820-FA and 820-FB.
Outward investing financial entity (non-ADI)
(2) The entity is an outward investing financial entity (non-ADI) for a period that is all or a part of an income year if, and only if, it is an *outward investor (financial) for that period (according to the items of the following table).
|
Outward investing financial entity (non-ADI) |
|||
|---|---|---|---|
|
Item |
If: |
and: |
then: |
|
1 |
the entity (the relevant entity ) is one or both of the following throughout a period that is all or a part of an income year: (a) an *Australian controller of at least one *Australian controlled foreign entity (not necessarily the same Australian controlled foreign entity throughout that period); (b) an Australian entity that carries on a *business at or through at least one *overseas permanent establishment (not necessarily the same permanent establishment throughout that period) |
the relevant entity is a *financial entity throughout that period |
the relevant entity is an outward investing financial entity (non-ADI) for that period |
|
2 |
(a) the entity (the relevant entity ) is an *Australian entity throughout a period that is all or a part of an income year; and (b) throughout that period, the relevant entity is an *associate entity of another Australian entity; and (c) that other Australian entity is an *outward investing financial entity (non-ADI) or an *outward investing entity (ADI) for that period |
the relevant entity is a *financial entity throughout that period |
the relevant entity is an outward investing financial entity (non-ADI) for that period |
Note: To determine whether an entity is an Australian controller of an Australian controlled foreign entity, see Subdivision 820-H.
(2A) However, the entity is not an outward investing financial entity (non-ADI) for a period that is all or a part of an income year if it is a *general class investor for that year.
(2B) Subsection (2A) does not apply for the purposes of subsection 820-46(2) (definition of general class investor ).
(2C) An entity that is an *outward investing financial entity (non-ADI) for a period that is all or part of an income year may make a choice under this subsection to apply the third party debt test in relation to that income year.
(2D) Section 820-47 applies in relation to a choice under subsection (2C) in the same way that it applies in relation to a choice under subsection 820-46(3) or (4).