Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX

View history reference

View history note

PART 4-5 - GENERAL

View history reference

View history note

Division 820 - Thin capitalisation rules

View history reference

View history note

Subdivision 820-B - Thin capitalisation rules for outward investing financial entities (non-ADI)

View history reference

View history note

Operative provisions

SECTION 820-110

820-110 Worldwide gearing debt amount - outward investor that is not also an inward investment vehicle

View history reference

If the entity is an *outward investing financial entity (non-ADI) for that year, and not also an *inward investment vehicle (financial) for all or any part of that year, the worldwide gearing debt amount is the result of applying the method statement in this subsection. Method statement

Step 1.

Divide the average value of all the entity ' s *worldwide debt for the income year by the average value of all the entity ' s *worldwide equity for that year.

Step 2.

(Repealed by No 110 of 2014)

Step 3.

Add 1 to the result of step 1.

Step 4.

Divide the result of step 1 by the result of step 3.

Step 5.

Multiply the result of step 4 in this method statement by the result of step 7 in the method statement in subsection 820-100(2) .

Step 6.

Add to the result of step 5 the average value, for that year, of the entity ' s *zero-capital amount (other than any zero-capital amount that is attributable to the entity ' s *overseas permanent establishments).

Step 7.

Add to the result of step 6 the average value, for that year, of the entity ' s *associate entity excess amount. The result of this step is the worldwide gearing debt amount .

Example:

GLM Limited, a company that is an Australian entity, has an average value of worldwide debt of $120 million and an average value of worldwide equity of $40 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 3 and 4) and multiplying the result by $121 million (which is the result of step 7 of the method statement in subsection 820-100(2) ) equals $90.75 million. The average value of zero-capital amount (see step 7 of the method statement in subsection 820-100(2)) is $4 million. Adding that amount to $90.75 million results in $94.75 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $94.75 million.

[ CCH Note: S 820-110(2) amended by No 23 of 2024, s 3 and Sch 2 item 47, by substituting " investing financial entity (non-ADI) " for " investor (financial) " in the subprovision heading. Since s 820-110(2) was subsequently amended (by No 23 of 2024, s 3 and Sch 2 item 48) to become s 820-110, subprovision headings do not exist at the provision level so this heading has been removed. The heading formerly read:

Outward investor (financial) that is not also an inward investment vehicle (financial)

]

View history note

History

S 820-110(2) amended by No 23 of 2024, s 3 and Sch 2 item 48, by substituting " If the entity is an *outward investing financial entity (non-ADI) " for " (2) If the entity is an *outward investor (financial) " , effective 1 July 2024. For application provisions, see note under s 705-60 .

S 820-110(2) amended by No 110 of 2014, s 3 and Sch 1 items 12, 32 and 33, by substituting steps 3 and 4 for steps 2, 3 and 4 in the method statement, inserting " and not also an *inward investment vehicle (financial) for all or any part of that year, " and substituting the example, applicable to assessments for income years starting on or after 1 July 2014. The steps and example formerly read:

Step 2.
Multiply the result of step 1 by 12/10 .

Step 3.
Add 1 to the result of step 2.

Step 4.
Divide the result of step 2 by the result of step 3.

Example:

GLM Limited, a company that is an Australian entity, has an average value of worldwide debt of $120 million and an average value of worldwide equity of $40 million. The result of applying steps 1 and 2 is therefore 3.6. Dividing 3.6 by 4.6 (through applying steps 3 and 4) and multiplying the result by $126 million (which is the result of step 7 of the method statement in subsection 820-100(2) ) equals $98.61 million. The average value of zero-capital amount (see step 7 of the method statement in subsection 820-100(2) ) is $4 million. Adding that amount to $98.61 million results in $102.61 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $102.61 million.

Former s 820-110(1) repealed by No 23 of 2024, s 3 and Sch 2 item 46, effective 1 July 2024. For application provisions, see note under s 705-60 . S 820-110(1) formerly read:

Outward investor (general) that is not also an inward investment vehicle (general)

820-110(1)
If the entity is an *outward investor (general) for the income year, and not also an *inward investment vehicle (general) for all or any part of that year, the worldwide gearing debt amount is the result of applying the method statement in this subsection. Method statement

Step 1.
Divide the average value of all the entity ' s *worldwide debt for the income year by the average value of all the entity ' s *worldwide equity for that year.

Step 2.
(Repealed by No 110 of 2014)

Step 3.
Add 1 to the result of step 1.

Step 4.
Divide the result of step 1 by the result of step 3.

Step 5.
Multiply the result of step 4 in this method statement by the result of step 6 in the method statement in section 820-95.

Step 6.
Add to the result of step 5 the average value, for that year, of the entity ' s *associate entity excess amount. The result of this step is the worldwide gearing debt amount .

Example:

AK Pty Ltd, a company that is an Australian entity, has an average value of worldwide debt of $90 million and an average value of worldwide equity of $30 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 3 and 4) and multiplying the result by $65 million (which is the result of step 6 in the method statement in section 820-95) equals $48.75 million. As the average value of the company ' s associate entity excess amount is $4.5 million, the worldwide gearing debt amount is therefore $53.25 million.

View history note

Hide history note

History

S 820-110(1) amended by No 110 of 2014, s 3 and Sch 1 items 11, 29 and 30, by substituting steps 3 and 4 for steps 2, 3 and 4 in the method statement, inserting " and not also an *inward investment vehicle (general) for all or any part of that year, " and substituting the example, applicable to assessments for income years starting on or after 1 July 2014. The steps and example formerly read:

Step 2.
Multiply the result of step 1 by 12/10 .

Step 3.
Add 1 to the result of step 2.

Step 4.
Divide the result of step 2 by the result of step 3.

Example:

AK Pty Ltd, a company that is an Australian entity, has an average value of worldwide debt of $83.4 million and an average value of worldwide equity of $27 million. The result of applying steps 1 and 2 is therefore 3.706. Dividing 3.706 by 4.706 (through applying steps 3 and 4) and multiplying the result by $70 million (which is the result of step 6 in the method statement in section 820-95) equals $55.13 million. As the average value of the company ' s associate entity excess amount is $4.5 million, the worldwide gearing debt amount is therefore $59.63 million.

Former s 820-110 inserted by No 162 of 2001.

Disclaimer and notice of copyright applicable to materials provided by CCH Australia Limited

CCH Australia Limited ("CCH") believes that all information which it has provided in this site is accurate and reliable, but gives no warranty of accuracy or reliability of such information to the reader or any third party. The information provided by CCH is not legal or professional advice. To the extent permitted by law, no responsibility for damages or loss arising in any way out of or in connection with or incidental to any errors or omissions in any information provided is accepted by CCH or by persons involved in the preparation and provision of the information, whether arising from negligence or otherwise, from the use of or results obtained from information supplied by CCH.

The information provided by CCH includes history notes and other value-added features which are subject to CCH copyright. No CCH material may be copied, reproduced, republished, uploaded, posted, transmitted, or distributed in any way, except that you may download one copy for your personal use only, provided you keep intact all copyright and other proprietary notices. In particular, the reproduction of any part of the information for sale or incorporation in any product intended for sale is prohibited without CCH's prior consent.