House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 6 - Resident thin capitalisation groups

Outline of chapter

6.1 The thin capitalisation rules apply to taxpayers on an individual basis. However, in the case of groups of taxpayers applying the rules on an individual entity basis could lead to inequitable results as well as greater compliance costs. This chapter explains the conditions that must be met to enable entities to form a group for thin capitalisation purposes (a resident TC group). It also outlines how the various thin capitalisation rules will apply to a particular resident TC group as well as to the individual entities within the group.

Context of reform

6.2 The thin capitalisation regime is designed to prevent the allocation of a disproportionate amount of debt to an entitys Australian operations. The new regime looks at the overall debt levels of the Australian operations of an entity, unlike the existing regime which targets only foreign related party debt.

6.3 Therefore, the ability for 100% owned entities to group in determining their debt levels is seen as better reflecting group structures and the broader debt coverage of the new regime. This would have been consistent with the proposed Consolidation regime, which would treat the consolidated group as a single entity for tax purposes. Grouping or consolidation removes the possibly inequitable results that could arise with substantial amounts of intra-group debt.

6.4 With the implementation of the Consolidation regime deferred to 1 July 2002, the provision of an interim grouping rule will enable entities to determine their funding levels on a group basis until the Consolidation regime is implemented. It is contemplated that this rule will be replaced when the Consolidation regime commences.

Summary of new law

6.5 The main features outlined in this chapter are:

Detailed explanation of new law

6.6 The grouping provisions modify how the thin capitalisation regime will apply to entities, including Australian permanent establishment of foreign banks, that form part of the resident TC group [Schedule 1, item 1, subsection 820-460(1)] . A discussion of the meaning of resident TC groups is contained in paragraphs 6.13 to 6.29. The new thin capitalisation regime applies to those entities in the resident TC group as if the group had been one company for that income year. If the rules do apply to the resident TC group, they do not apply separately to individual members of the group [Schedule 1, item 1, subsection 820-460(3)] .

6.7 The purpose of forming the resident TC group is to determine, on a group basis, the maximum allowable debt deduction arising from debt used to finance the Australian operations. If there is any disallowed debt deduction it is apportioned to the individual entities within the resident TC group. [Schedule 1, item 1, section 820-465]

6.8 The thin capitalisation rules that apply to the resident TC group are determined by the nature of the resident TC group, at the end of the income year, as if it were a single entity:

•

whether it is an inward or outward investing entity;

•

whether it is a non-ADI or an ADI entity; and

•

if it is a non-ADI entity, whether it is a general or a financial entity.

The grouping provisions contained in Subdivision 820-F only modify the application of the thin capitalisation rules for entities that make up the resident TC group, if the group meets the requirements of one of these classifications at the end of the income year. [Schedule 1, item 1, subsection 820-460(2)]

6.9 The end of the income year is the income year end day that is common to the eligible companies that can form the basis of a resident TC group (see paragraph 6.19).

6.10 Where these requirements are met, the resident TC group is treated as if it had incurred the debt deductions for that income year, based on the actual costs incurred by the entities that are considered for the purposes of the thin capitalisation rules to be divisions or parts of that group. [Schedule 1, item 1, subsection 820-460(5)]

6.11 The particular rules that apply to a resident TC group will depend upon the nature of the entities that are within that group at the end of the income year. Subdivision 820-F contains rules outlining the application of Subdivisions 820-B to 820-E to resident TC groups. The conditions for the application of a particular Subdivision are determined by the entities that constitute the resident TC group at the end of the relevant income year. [Schedule 1, item 1, section 820-550]

6.12 When forming a resident TC group, as the name implies it is only the resident companies of the maximum TC group (see paragraph 6.14) which are to be part of the resident TC group. For these companies which form the basis of the resident TC group there is a requirement that they be Australian entities and not prescribed dual residents. [Schedule 1, item 1, subsection 820-505(3)]

What constitutes a resident TC group?

6.13 The decision of whether or not to form a resident TC group is to be made by the top entity (see paragraph 6.16) within the maximum TC group. However, if there is more than one top entity within the maximum TC group, only one of them can make the choice. Which one makes the choice is left up to the group. [Schedule 1, item 1, subsections 820-500(1) and (2)]

What is a maximum TC group?

6.14 The maximum TC group is determined at the end of the income year. The group will consist of:

•

a company (which can be a corporate limited partnership), where that company is not a 100% subsidiary of any other company at the end of the income year; and

•

each 100% subsidiary of that company that exists at that time.

[Schedule 1, item 1, subsection 820-500(3)]

6.15 Companies which are not part of the maximum TC group at the end of year, will in all cases be ineligible to be included as part of a resident TC group even though they may meet all other necessary requirements.

What is a top entity?

6.16 A top entity of the maximum TC group is a company in the maximum TC group which is common to each 100% subsidiary company within that group that is:

•

an Australian entity; and

•

not a prescribed dual resident.

[Schedule 1, item 1, subsection 820-500(4)]

Example 6.1

In this example, assuming all companies are part of the maximum TC group, both For Co 1 and 2 are common to all the Australian resident companies in the group, therefore both are considered to be top entities.

6.17 Once the maximum TC group has been determined the top entity can then make one of 3 choices [Schedule 1, item 1, subsection 820-500(1)] . The choices are to either:

•

form a single resident TC group [Schedule 1, item 1, section 820-505] ;

•

form multiple resident TC groups [Schedule 1, item 1, section 820-510] ; or

•

have no grouping apply at all [Schedule 1, item 1, section 820-520] .

Is the choice of the top entity binding?

6.18 The choice that the top entity makes in relation to forming a resident TC group, if any is to be formed, is binding on each entity within the resident TC group. It also binds companies that are part of the maximum TC group, even though they are not in the resident TC group. The decision made by the top entity for that income year cannot be revoked. [Schedule 1, item 1, section 820-525]

How is a single resident TC group formed?

6.19 The first choice, which enables the top entity to form a single resident TC group, is possible only where all companies in the maximum TC group which are:

•

Australian entities; and

•

not prescribed dual residents,

have a common end of income year. These companies are classified as being eligible companies . [Schedule 1, item 1, subsections 820-505(1) and (3)]

6.20 The single resident TC group would then include:

•

all the eligible companies;

•

each partnership where all the interests in the income and capital of that partnership are beneficially owned by companies which are themselves part of the resident TC group [Schedule 1, item 1, paragraphs 820-505(2)(b) and 820-515(a)] ;

•

each trust where all the interests in the income and capital of that trust are beneficially owned by companies or partnerships which are themselves part of the resident TC group [Schedule 1, item 1, paragraphs 820-505(2)(b) and 820-515(b)] ; and

•

each Australian permanent establishment of a foreign bank where the foreign bank, as part of the maximum TC group, chooses to include its Australian permanent establishments in the resident TC group [Schedule 1, item 1, paragraphs 820-505(2)(c) and 820-515(c)].

In all instances, to be part of the resident TC group each partnership, trust or Australian permanent establishment of a foreign bank must have an income year that ends on the same day as that on which the income year of the eligible companies ends [Schedule 1, item 1, subsection 820-505(2)] .

Example 6.2

Assume this is a maximum TC group.

In this example, assuming the requirements in paragraph 6.19 are met, FI as the top entity, would be able to form a single resident TC group, which would comprise all the Australian entities, that is, A1 to A8.

How are multiple resident TC groups formed?

6.21 The second choice available to the top entity is to divide the entities within the maximum TC group into one or more resident TC groups on the basis that each individual resident TC group would consist of the following:

•

a subgroup formed by:

-

a node entity (see paragraph 6.24); and

-

each 100% subsidiary of the node entity that meets the same requirements as specified for an eligible company (see paragraph 6.19) and has the same income year end as the node entity [Schedule 1, item 1, subsection 820-510(3)] ;

•

each partnership where all the interests in the income and capital of that partnership are beneficially owned by companies which are themselves part of the resident TC group [Schedule 1, item 1, paragraphs 510(1)(b) and 820-515(a)] ;

•

each trust where all the interests in the income and capital of that trust are beneficially owned by companies or partnerships which are themselves part of the resident TC group [Schedule 1, item 1, paragraphs 510(1)(b) and 820-515(b)] ; and

•

each Australian permanent establishment of a foreign bank where the foreign bank, as part of the maximum TC group, chooses to include its Australian permanent establishments in the resident TC group [Schedule 1, item 1, paragraphs 510(1)(c) and 820-515(c)] .

In all instances the relevant entities must have an income year which ends on the same day as that of the node entity [Schedule 1, item 1, subsection 820-510(1)] .

6.22 It is also possible that a resident TC group can also be formed by the combination of 2 or more of the above subgroups. For example, in Diagram 6.2 subgroups A1 and A5 would group with subgroups A2 and A6. This can occur where all the companies in those 2 or more subgroups are all 100% subsidiaries of the same foreign company, that is, the link company (Company F2 in Diagram 6.2 is a link company). In this instance, the resident TC group would include all the 100% subsidiaries of that link company which meet the requirements of an eligible company (see paragraph 6.19) and whose income year end is the same. [Schedule 1, item 1, subsection 820-510(2)]

6.23 Therefore, each individual resident TC group must include all 100% subsidiaries of either the link company or a node entity, as the case may be, together with any relevant partnership, trust or Australian permanent establishment of a foreign bank which may be part of that resident TC group.

What is a node entity?

6.24 A node entity is a term used to describe an entity (a company or a corporate limited partnership) that is part of the maximum TC group which meets the following 2 requirements:

•

it is an Australian entity but is not a prescribed dual resident; and

•

is itself not a 100% subsidiary of another entity within the maximum TC group which also meets those same residency requirements (specified in the first dot point) at the end of that year.

[Schedule 1, item 1, paragraph 820-510(3)(a)]

Example 6.3

Assume this is a maximum TC group.

Where, instead of forming a single resident TC group, the top entity elects to form multiple resident TC groups, it has several options available to it:

•

four separate groups could be formed below the individual node entities, A1, A2, A3 and A4;

•

A1, A2, A5, and A6 could form one resident TC group with F2 being their common link company , while A3 and A4 would form individual resident TC groups with their respective subsidiaries as they would be the relevant node entities on which the resident TC groups would be based;

•

similarly, A3, A4, A7, and A8 could form one resident TC group with F3 being their common link company , while A1 and A2, together with their respective subsidiaries, would form individual resident TC groups as they would be the relevant node entities on which the groups would be based;

•

two resident TC groups, one consisting of A1, A2, A5 and A6, and the other consisting of A3, A4, A7 and A8, based on the link companies F2 and F3 respectively.

What occurs where there is no grouping within the maximum TC group?

6.25 The third choice available to the top entity of the maximum TC group is that there be no grouping of any of the entities within the maximum TC group.

6.26 Where this decision is made the thin capitalisation rules apply to each entity within the maximum TC group on an individual basis. Subdivision 820-F will have no effect on any entities in these instances. [Schedule 1, item 1, section 820-520]

What entities comprise the group during the year?

6.27 The resident TC group can only comprise entities that were part of the resident TC group at the end of the income year. If the end of the income year date is the only measurement date that is used for the first income year, then all entities within the resident TC group will comprise the group at that measurement date.

6.28 If the resident TC group chooses to use measurement dates other than just the end of the income year for the first income year, then the determination of the value of a particular matter for the resident TC group is to be based on only those entities that were a part of the resident TC group at that measurement day. That is, the entity must have been a member of the group at the end of the income year as well as at the relevant measurement date for its assets, debt, etc on that date to be counted. [Schedule 1, item 1, section 820-530]

6.29 For the first income year, being an income year which commences before 1 July 2002 and ends before 30 June 2003, special rules apply for resident TC groups to which the ADI rules apply. In these instances, where Subdivisions 820-D or 820-E are applied, the resident TC group is only permitted to use measurement days for that income year where the TC group included an ADI on that measurement day. The group may, of course, choose to use only the one measurement day, at the end of that income year. [Schedule 1, item 22, section 820-30]

How are the calculations made for a resident TC group?

What is the value of the resident TC groups assets and liabilities?

6.30 The value of the assets and liabilities to be used by the resident TC group when determining the value of a particular matter, at a particular time, for thin capitalisation purposes is to be calculated as if the resident TC group were a single entity. This means that all intra-group transactions and balances are ignored.

6.31 The information to be used is that which would be contained in a set of consolidated accounts prepared in accordance with the accounting standards at the measurement time. [Schedule 1, item 1, paragraph 820-470(a); Schedule 2, item 2, definition of accounting standards in subsection 995-1(1)]

6.32 The information required is only in relation to those entities that were part of the resident TC group at that measurement time. [Schedule 1, item 1, paragraph 820-470(b)]

6.33 Using consolidated accounts as the basis of determining relevant values permits recognition of items such as goodwill on consolidation for entities which are entering the resident TC group.

How is the debt deduction applied to individual entities within the resident TC group?

6.34 Where the thin capitalisation provisions would disallow all or part of a debt deduction for the resident TC group for the year, they do so on the basis that the resident TC group is a single entity. Any disallowance is only in relation to debt deductions that were external to the resident TC group. [Schedule 1, item 1, subsections 820-460(3) to (5)]

6.35 For the entities that comprise the resident TC group, this amount equates to the sum of each entitys debt deductions (net of intra-group amounts).

6.36 On this basis, any debt deduction disallowed to the resident TC group is disallowed to the same extent to each individual entity within that group. This calculation does not affect any debt deduction claimed by the individual entities to the extent that they were incurred or owed to other entities within the resident TC group. [Schedule 1, item 1, section 820-465]

Diagram 6.4

Assume $10 million excess debt for the group and a consolidated group debt amount of $200 million.

If companies A, B and C comprised a resident TC group (non-ADI) for the income year then:

•

$20 million of intra-group debt deductions are ignored for thin capitalisation purposes;

•

the groups calculation of maximum allowable debt deduction is based on $18 million of debt deduction that is external to the group; and

•

any disallowance to the individual entities is to the same extent as the disallowance to the group. For example, for Company A, the disallowed debt deduction equals $5 million * ($10 million / $200 million).

When do the outward investing entity (non-ADI) rules apply to a resident TC group?

6.37 The rules for an outward investing entity (non-ADI) are in Subdivision 820-B (see Chapter 3).

6.38 A resident TC group is an outward investing entity (non-ADI) for the income year if it is either:

•

an outward investor (general) for that year; or

•

an outward investor (financial) for that year.

[Schedule 1, item 1, subsection 820-550(1); Schedule 2, item 52, definition of outward investing entity (non-ADI) in subsection 995-1(1)]

What if the resident TC group includes an outward investor (general)?

6.39 When a resident TC group includes one or more outward investors (general) at the end of the income year but does not include a financial entity or an ADI at the end of the income year, that group will be treated as an outward investor (general). Subdivision 820-B will apply to that resident TC group, for that income year, as though it were an individual outward investor (general). This is the case even if an entity within the group is a foreign controlled Australian entity, because the thin capitalisation rules for outward investing entities take priority over the thin capitalisation rules for inward investing entities. [Schedule 1, item 1, subsection 820-550(2); Schedule 2, item 54, definition of outward investor (general) in subsection 995-1(1)]

6.40 In applying Subdivision 820-B, it should be noted that section 820-100 does not apply to the resident TC group as that section only applies to outward investing entities that are financial entities.

What if the resident TC group includes a financial entity?

6.41 If the resident TC group at the end of the income year includes either:

•

an entity that is an outward investor (financial) but no ADI; or

•

an outward investor (general), a financial entity (whether that entity is an outward investing entity or not, and whether it is foreign controlled or not), but no ADI,

the resident TC group will be treated as an outward investor (financial) for that income year. See paragraph 2.18 for the meaning of a financial entity. Subdivision 820-B will apply to that resident TC group, for that income year, as though it were an individual outward investor (financial). [Schedule 1, item 1, subsections 820-550(3) and (4); Schedule 2, item 53, definition of outward investor (financial) in subsection 995-1(1)]

6.42 In the application of Subdivision 820-B to the resident TC group, section 820-95 does not apply to that group. That section only applies if the group is treated as an outward investor (general).

6.43 Another modification is that, when calculating the average value of the resident TC groups on-lent amount, only those amounts that are lent by members of the group that are financial entities throughout the income year are taken into account. Amounts lent by entities that are not financial entities throughout the income year are not included in the groups on-lent amount. In other words, the whole group is not to be regarded as a financial entity as far as the on-lending rule is concerned. Similarly, only entities that have been financial entities throughout the income year can take into account the zero-capital amount, which is discussed in Chapter 2. [Schedule 1, item 1, section 820-560; Schedule 2, item 74, definition of zero-capital amount in subsection 995-1(1)]

6.44 The requirement that an entity be a financial entity throughout the income year to access the on-lending and zero-capital amount concessions is not governed by the entitys membership of the resident TC group throughout the year. That is, the entity, subject to being a member of the resident TC group at the end of the income year, must have been a financial entity for the whole of the income year that mirrors the resident TC groups income year.

What if the resident TC group includes an ADI entity?

6.45 If a resident TC group does include an ADI entity at the end of the income year, Subdivision 820-B does not apply to that resident TC group for that income year. That group will be treated as being an outward investing entity (ADI) for that income year. See paragraphs 6.54 to 6.60 for the application of those rules to such a resident TC group.

When do the inward investing entity (non-ADI) rules apply to a resident TC group?

6.46 The rules for an inward investing entity (non-ADI) are in Subdivision 820-C (see Chapter 2).

6.47 A resident TC group is an inward investing entity (non-ADI) for the income year if it is either:

•

an inward investment vehicle (general) for that year; or

•

an inward investment vehicle (financial) for that year.

[Schedule 1, item 1, subsection 820-550(5); Schedule 2, item 40, definition of inward investing entity (non-ADI) in subsection 995-1(1)]

What if the resident TC group includes an inward investment vehicle (general)?

6.48 Where the resident TC group includes an entity that is an inward investment vehicle at the end of the income year but does not include any financial entities, nor any ADIs or outward investing entities at the end of the income year, that group will be treated as an inward investment vehicle (general). Subdivision 820-C will apply to that resident TC group, for that income year, as though it were an individual inward investment vehicle (general). [Schedule 1, item 1, subsection 820-550(6); Schedule 2, item 42, definition of inward investment vehicle (general) in subsection 995-1(1)]

6.49 In applying Subdivision 820-C, the first point to note is that section 820-200 does not apply to the resident TC group as that section applies only to inward investment vehicles that are financial entities. Sections 820-205 and 820-210 also do not apply as those sections apply to foreign entities only.

What if the resident TC group includes a financial entity?

6.50 If the resident TC group does include an inward investment vehicle (financial) at the end of the income year, but does not include an outward investing entity or any ADI entity, that resident TC group will be treated as an inward investment vehicle (financial) for that income year [Schedule 1, item 1, subsection 820-550(7); Schedule 2, item 41, definition of inward investment vehicle (financial) in subsection 995-1(1)] . Subdivision 820-C will apply to that resident TC group, for that income year, as though it were an individual inward investment vehicle (financial).

6.51 In the application of Subdivision 820-C to that resident TC group, section 820-195 does not apply to that group, as that section applies only if the group is treated as an inward investment vehicle (general). Also, sections 820-205 and 820-210 do not apply to that group as those sections apply only to foreign entities.

6.52 The same limitations on treating the group as a financial entity as were discussed in paragraph 6.43 apply to groups dealt with as inward investment vehicles (financial). [Schedule 1, item 1, section 820-560]

What if the resident TC group includes an ADI entity?

6.53 If the resident TC group includes an ADI entity at the end of the income year, Subdivision 820-C does not apply to that resident TC group for that income year. Paragraphs 6.54 to 6.60 explain what thin capitalisation rules are to apply to such a group.

When do the outward investing entity (ADI) rules apply to a resident TC group?

6.54 The rules for an outward investing entity (ADI) are in Subdivision 820-D (see Chapter 5).

6.55 If, at the end of an income year, a resident TC group includes an outward investing entity (ADI), or at least one Australian controller of an Australian controlled foreign entity, that is, an outward investing entity, and another entity that is an ADI, that resident TC group will be treated as an outward investing entity (ADI) for that income year [Schedule 1, item 1, subsection 820-550(8); Schedule 2, item 51, definition of outward investing entity (ADI) in subsection 995-1(1)] . Subdivision 820-D will apply to that resident TC group for that income year as though it were an outward investing entity (ADI).

6.56 If, however, the resident TC group is not an outward investing entity (ADI), but includes at least one foreign controlled Australian ADI and another foreign controlled Australian entity which is not a subsidiary of the ADI, Subdivision 820-D will apply to that group as if it were an outward investing entity (ADI). An example of this would be where a foreign bank has 2 wholly-owned Australian subsidiaries, one a bank and the other not a bank where the latter is not owned by the Australian bank subsidiary and so does not come under APRA supervision. [Schedule 1, item 1, paragraph 820-460(2)(c) and subsection 820-565(1)]

6.57 In the application of the outward ADI rules to such a resident TC group, the groupsaverage equity capital includes the consolidated eligible Tier 1 capital of the bank subgroup as determined by the APRA guidelines. These are described in paragraphs 5.29 to 5.31. It also includes the equity capital of any foreign bank branch in the group. Determining the equity capital of the foreign bank branch is discussed in Chapter 4. It will also include the consolidated equity capital of any non-bank entities that are not part of the APRA regulated subgroup. [Schedule 1, item 1, subsection 820-565(2)]

6.58 The safe harbour capital amount of the resident TC group is calculated by first determining the consolidated risk-weighted assets of the members of the resident TC group. For a foreign bank branch these are the risk-weighted assets attributable to the foreign bank branch (not including risk-weighted assets attributable to offshore banking activities) [Schedule 1, item 1, subsection 820-565(3)] . The method statement in section 820-310 is then applied to these amounts, taking into account the prudential capital deductions required by APRA.

6.59 Where an ADI subsidiary of foreign bank has issued debentures under section 128F, on-lent them to an Australian permanent establishment of the foreign bank and the 2 entities are not part of the same resident TC group, special rules apply. For the purposes of determining the safe harbour capital amount for the resident TC group which includes the ADI subsidiary, the rule reduces the risk-weighted assets of the group by not counting the section 128F funds on-lent to the permanent establishment. The rationale for the rule is to ensure that the same pool of section 128F funds is not counted twice for thin capitalisation purposes. [Schedule 1, item 1, subsection 820-570(1)]

6.60 The rule applies for 5 years to allow time for foreign banks to refinance their section 128F programs by issuing the debentures through their Australian branches [Schedule 1, item 1, subsection 820-570(2)] . Section 128F funds are discussed in paragraphs 4.46 to 4.51.

When do the inward investing entity (ADI) rules apply to a resident TC group?

6.61 The rules for an inward investing entity (ADI) are in Subdivision 820-E (see Chapter 4).

6.62 The inward investing entity (ADI) rules apply to a foreign bank that carries on its banking business in Australia at or through an Australian permanent establishment. [Schedule 1, item 1, subsection 820-395(2); Schedule 2, item 39, definition of inward investing entity (ADI) in subsection 995-1(1)]

6.63 However, if a resident TC group includes an Australian permanent establishment of a foreign bank (foreign bank branch) but no outward investing entity nor a foreign controlled Australian bank, a modified Subdivision 820-E will apply to that resident TC group as if it were an inward investing entity (ADI). [Schedule 1, item 1, paragraph 820-460(2)(d) and subsection 820-575(1)]

6.64 In the application of the inward ADI rules to the resident TC group, the groupsaverage equity capital includes the consolidated paid-up share capital (less amounts that are debt interests), retained earnings, general reserves and asset revaluation reserves of each subsidiary in the group [Schedule 1, item 1, subsection 820-575(2); Schedule 2, item 19, definition of average equity capital in subsection 995-1(1)] . It also includes the equity capital of the foreign bank branch. Determining the equity capital of the foreign bank branch is discussed in Chapter 4.

6.65 The safe harbour capital amount of the resident TC group is calculated by determining the consolidated risk-weighted assets of the members of the resident TC group. For the foreign bank branch these are the risk-weighted assets attributable to the foreign bank branch (not including risk-weighted assets attributable to offshore banking activities) [Schedule 1, item 1, subsection 820-575(4)] . The total of the risk-weighted assets of the group is multiplied by 4% to determine the safe harbour capital amount [Schedule 1, item 1, subsection 820-575(3)] .

When are the thin capitalisation rules not applied to a resident TC group that contains an ADI?

6.66 If a resident TC group contains a foreign controlled Australian bank but does not qualify as an outward investing entity (ADI), the thin capitalisation rules may not apply to the group because the capital adequacy requirements of APRA are sufficient for tax purposes. This will be the case where the resident TC group at the end of the income year consists only of entities which are:

•

ADIs that are foreign controlled Australian entities;

•

100% subsidiaries of those ADIs in the resident TC group that are foreign controlled Australian entities; and

•

partnerships or trusts where all the interests in the income and capital of each partnership and trust are beneficially owned by either of the above.

[Schedule 1, item 1, paragraph 820-460(2)(b) and section 820-555]

Application and transitional provisions

6.67 The general application and transitional provisions apply to resident TC groups and these are discussed in Chapter 1. An additional provision dealing with the calculation of a matter for a resident TC group that includes an ADI or foreign bank branch is discussed in paragraph 6.29.