Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-KA - Cost-free debt capital and excluded equity interests  

SECTION 820-946   Cost-free debt capital and excluded equity interest  

820-946(1)    

This subsection applies to an entity for a period (the relevant period ) that is all or a part of an income year if the entity satisfies all of the following:

(a)    

the entity is an *outward investing financial entity (non-ADI) or *inward investing financial entity (non-ADI) for that period;

(b)    if the entity is a *foreign entity - the entity holds any of the following assets throughout that period:

(i) assets that are attributable to the entity ' s *Australian permanent establishments;

(ii) other assets that are held for the purposes of producing the entity ' s assessable income;

(c)    

neither section 820-35 ($2 million debt deductions threshold) nor section 820-37 (exemption for entity with 90% Australian assets) prevents Subdivision 820-B , 820-C , 820-D or 820-E from disallowing any *debt deduction of the entity for the income year;

(da)    

for some or all of that period, the entity does not meet the conditions in subsection 820-39(3) (about exemption of certain special purpose entities);

(d)    the entity is not an *exempt entity for the income year.

Note:

Paragraph (c) corresponds to the threshold tests for this Division set out in sections 820-35 and 820-37 .

820-946(2)    
The cost-free debt capital of the entity at a particular time during the relevant period is the total value of all the *debt interests *issued by the entity that satisfy all of the following:

(a)    the interests are *on issue at that time;

(b)    none of the interests gives rise to any cost, at any time, that is covered by paragraph 820-40(1)(a) ;

(c)    each of the interests is covered by subsection (3) or (4) of this section at that time.

820-946(2A)    

An *equity interest in the entity is an excluded equity interest at a particular time during the relevant period if, and only if:

(a)    if subsection (1) does not apply to the holder of the interest for all or part of the relevant period:

(i) the entity is an *associate of the holder; and

(ii) at that time, the interest has been *on issue for a period of less than 180 days; or

(b)    if subsection (1) applies to the holder for all or part of the relevant period:

(i) the entity is an associate of the holder; and

(ii) at that time, the interest has been on issue for a period of less than 180 days; and

(iii) the interest is covered by subsection (3) at that time.

However, the interest is taken not to have been an excluded equity interest at the time if the total period for which the interest remains on issue is 180 days or more.

820-946(3)    

This subsection covers a *debt interest or *equity interest held by an entity (the holder ) at the particular time mentioned in subsection (2) or (2A) if:

(a)    subsection (1) also applies to the holder for a period (the overlapped period ) that is, or includes, all or a part of the relevant period; and

(b)    for the purposes of applying this Division to both the holder and the issuer of the interest (the issuer ), and in relation to only that part of the overlapped period that falls within the relevant period, either or both of the following apply:

(i) the *valuation days used to calculate the average value of the holder ' s assets are different from the valuation days used to calculate the issuer ' s *adjusted average debt;

(ii) the number of valuation days used to calculate the average value of the holder ' s assets are different from the number of valuation days used to calculate the issuer ' s adjusted average debt.

820-946(4)    

This subsection covers a *debt interest held by an entity (the holder ) at the particular time mentioned in subsection (2) if:

(a)    subsection (1) does not apply to the holder for a period that is, or includes, all or a part of the relevant period; and

(b)    at that time, the debt interest has been *on issue for a period of less than 180 days.

However, if the total period for which the interest remains on issue is 180 days or more, this subsection is taken not to have covered the interest at that time.

820-946(5)    
For the purposes of subsection (2) , take into account the value of a *debt interest issued by a *foreign entity only to the extent that the interest is attributable to assets covered by subparagraph (1)(b)(i) or (ii) that are held by the foreign entity throughout the relevant period.