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
57 Subsections 820-185(1) and (2)
Repeal the subsections, substitute:
Thin capitalisation rule
(1A) Subsection (1) applies if:
(a) an entity is an *inward investing financial entity (non-ADI) (see subsection (2)) for all of an income year, but is not also an *outward investing financial entity (non-ADI) (see section 820-85) for all or any part of that 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 820-190) 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; or
(b) if paragraph (1A)(b)(ii) applies - all or a part of each debt deduction of the entity for the income year.
Note 1: To work out the amount to be disallowed, see section 820-220.
Note 2: For the rules that apply to an entity that is an outward investing financial entity (non-ADI) as well as an inward investing financial entity (non-ADI), see Subdivision 820-B.
Note 3: For the rules that apply to an entity that is an inward investing financial entity (non-ADI) for only a part of an income year, see section 820-225 in conjunction with subsection (2) of this section.
Note 4: To calculate an average value for the purposes of this Division, see Subdivision 820-G.
Note 5: A consolidated group or MEC group may be an inward investing financial entity (non-ADI) to which this Subdivision applies: see Subdivisions 820-FA and 820-FB.
Inward investing financial entity (non-ADI)
(2) The entity is an inward investing financial entity (non-ADI) for a period that is all or a part of an income year if, and only if, it is:
(b) an *inward investment vehicle (financial) for that period (as set out in item 1 of the following table); or
(d) an *inward investor (financial) for that period (as set out in item 2 of that table).
Inward investing financial entity (non-ADI) |
|||
---|---|---|---|
Item |
If the entity is a: |
and the entity: |
the entity is an: |
1 |
*foreign controlled Australian entity throughout a period that is all or a part of an income year |
is a *financial entity throughout that period |
inward investment vehicle (financial) for that period |
2 |
*foreign entity throughout a period that is all or a part of an income year |
is a *financial entity throughout that period |
inward investor (financial) for that period |
Note 1: To determine whether an entity is a foreign controlled Australian entity, see Subdivision 820-H.
Note 2: An entity covered by item 2 of the table may be required to keep certain records, see Subdivision 820-L.
(2A) However, the entity is not an inward 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 *inward 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).