Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX

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PART 4-5 - GENERAL

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Division 820 - Thin capitalisation rules

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

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Operative provisions

SECTION 820-111

820-111 Worldwide gearing debt amount - outward investor that is also an inward investment vehicle

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If the entity is an *outward investing financial entity (non-ADI) for the income year, and is 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 entity ' s *statement worldwide debt for the income year by the entity ' s *statement worldwide equity for that year.

Step 2.

Add 1 to the result of step 1.

Step 3.

Divide the result of step 1 by the result of step 2.

Step 4.

Multiply the result of step 3 in this method statement by the result of step 7 in the method statement in subsection 820-100(2) .

Step 5.

Add to the result of step 4 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 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:

TRR Limited, a company that is an Australian entity, has a worldwide parent entity in the United States of America. TRR Limited also has permanent establishments in Malaysia. TRR Limited has statement worldwide debt of $90 million and statement worldwide equity of $30 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 2 and 3) and multiplying the result by $100 million (which is the result of step 7 of the method statement in subsection 820-100(2) ) equals $75 million. The zero capital amount is $5 million. Adding that amount to $75 million results in $80 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $80 million.

[ CCH Note: S 820-111(2) amended by No 23 of 2024, s 3 and Sch 2 item 50, by substituting " investing financial entity (non-ADI) " for " investor (financial) " in the subprovision heading. Since s 820-111(2) was subsequently amended (by No 23 of 2024, s 3 and Sch 2 item 51) to become s 820-111, subprovision headings do not exist at the provision level so this heading has been removed. The heading formerly read:

Outward investor (financial)

]

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History

S 820-111(2) amended by No 23 of 2024, s 3 and Sch 2 item 51, 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 .

Former s 820-111(1) repealed by No 23 of 2024, s 3 and Sch 2 item 49, effective 1 July 2024. For application provisions, see note under s 705-60 . S 820-111(1) formerly read:

Outward investor (general)

820-111(1)
If the entity is an *outward investor (general) for the income year, and is 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 entity ' s *statement worldwide debt for the income year by the entity ' s *statement worldwide equity for that year.

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

Step 3.
Divide the result of step 1 by the result of step 2.

Step 4.
Multiply the result of step 3 in this method statement by the result of step 6 in the method statement in section 820-95.

Step 5.
Add to the result of step 4 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:

RKR Limited, a company that is an Australian entity, has a worldwide parent entity in Canada. RKR Limited also has permanent establishments in Singapore. RKR Limited has statement worldwide debt of $120 million and statement worldwide equity of $40 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 2 and 3) and multiplying the result by $75 million (which is the result of step 6 of the method statement in section 820-95) equals $56.25 million. As the average value of the company ' s associate entity excess amount is $4 million, the worldwide gearing debt amount is therefore $60.25 million.

Former s 820-111 inserted by No 110 of 2014, s 3 and Sch 1 item 13, applicable to assessments for income years starting on or after 1 July 2014.

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