Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-K - Zero-capital amount  

SECTION 820-942   How to work out the zero-capital amount  

820-942(1)    

An entity ' s zero-capital amount at a particular time is the result of the method statement in this subsection. Method statement

820-942(2A)    

This subsection covers an asset that:

(a) the entity provided as security for the performance of its obligations in relation to securities it acquired under a reciprocal purchase agreement (otherwise known as a repurchase agreement), sell-buyback arrangement or securities loan arrangement; and

(b) does not consist of *shares.

Securitisation vehicle

820-942(2)    
An entity is a securitisation vehicle if:

(a) it is an entity established for the purposes of acquiring, funding and holding *securitised assets (see subsection (3)); and

(b) it has acquired the securitised assets from another entity (the originator ); and

(c) the acquisition of the securitised assets is wholly funded by the issuing of *debt interests by the entity; and

(d) in issuing the debt interests, the entity does not receive any guarantee, security or other form of credit support from any of its *associate entities, the originator or any associate entity of the originator; and

(e) the entity has not issued debt interests for any purpose other than for the purpose of funding the acquisition of the securitised assets; and

(f) there are no debt interests issued to the entity by any of the entity ' s associate entities, the originator or any associate entity of the originator; and

(g) any *arrangements the entity has with any of its associate entities, the originator or any associate entity of the originator are those that would reasonably be expected to have been entered into by parties dealing at *arm ' s length with each other.

Note:

An entity that does not qualify as a securitisation vehicle may be exempt from the thin capitalisation rules under section 820-39 .

Securitised assets

820-942(3)    
An asset of an entity is a securitised asset if:

(a) the entity is a *securitisation vehicle; and

(b) the asset consists of:

(i) *debt interests issued by an entity other than the originator in relation to the securitisation vehicle that is mentioned in paragraph (2)(b); or

(ii) a lease for the hire of goods that would be a lease covered by paragraph (b) of the definition of on-lent amount if a reference to an entity in that definition were a reference to that originator; or

(iii) a *scheme that, apart from the operation of paragraph 974-25(1)(b) , would have given rise to a debt interest covered by subparagraph (i); and

(c) the asset provides security for the issuing of debt interests that funded the acquisition of the asset by the securitisation vehicle (see paragraph (2)(c)).

What is the required credit rating?

820-942(4)    
For the purposes of step 2 of the method statement in subsection (1), the required credit rating for an entity issuing a *debt interest is:

(a) if the interest is a *subordinated debt interest - a long-term foreign currency corporate credit rating of at least A (or equivalent) given to the entity by an internationally recognised rating agency; or

(b) if the interest is not a subordinated debt interest - a long-term foreign currency corporate credit rating of at least BBB (or equivalent) given to the entity by an internationally recognised rating agency.

When must an entity have the required credit rating

820-942(5)    
The entity must have the required credit rating as specified in any of the following paragraphs:

(a) the entity had the required credit rating for the *debt interest when the interest was issued;

(b) the following subparagraphs apply:

(i) the entity did not have any long-term foreign currency corporate credit rating given to it by an internationally recognised rating agency when the debt interest was issued; but

(ii) the entity had the required credit rating for that interest at any time during the period of 6 months immediately before the interest was issued;

(c) the following subparagraphs apply:

(i) when the debt interest was issued, and throughout the period of 6 months immediately before the interest was issued, the entity did not have any long-term foreign currency corporate credit rating given to it by an internationally recognised rating agency; but

(ii) the entity has the required credit rating for that interest at any time during the period of 6 months immediately after the interest was issued.