Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 820 - Thin capitalisation rules  

Subdivision 820-AA - Thin capitalisation rules for general class investors  

Operative provisions

SECTION 820-46   Thin capitalisation rule for general class investors  

Thin capitalisation rule

820-46(1)    
This subsection disallows all or part of an entity ' s * debt deductions for an income year if, for that year:

(a)    the entity is a * general class investor (see subsection (2) ); and

(b)    the entity:

(i) has not made a choice under subsection (3) or (4) (fixed ratio test applies); or

(ii) has made a choice under subsection (3) (group ratio test applies); or

(iii) has made a choice under subsection (4) (third party debt test applies).

Note 1:

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 .

Note 2:

To work out the amount to be disallowed, see section 820-50 .

Note 3:

A consolidated group or MEC group may be a general class investor to which this Subdivision applies: see Subdivisions 820-FA and 820-FB .

General class investor

820-46(2)    
The entity is a general class investor for an income year if, and only if:

(a)    for a period that is all or part of the income year, the entity is not any of the following:

(i) an * outward investing financial entity (non-ADI);

(ii) an * inward investing financial entity (non-ADI);

(iii) an * outward investing entity (ADI);

(iv) an * inward investing entity (ADI); and

(b)    assuming that the entity were a * financial entity for all of the income year, it would be, for the income year, any of the following:

(i) an outward investing financial entity (non-ADI);

(ii) an inward investing financial entity (non-ADI).

820-46(3)    
An entity that is a * general class investor for an income year may make a choice under this subsection to apply the group ratio test in relation to that income year if:

(a)    the entity is a * GR group member for the period corresponding to the income year of a * GR group for the period; and

(b)    the * GR group EBITDA for the period of the GR group is greater than zero.

820-46(4)    
An entity that is a * general class investor for an income year may make a choice under this subsection to apply the third party debt test in relation to that income year.

820-46(5)    
An entity that is a * general class investor for an income year is taken to have made a choice under subsection (4) in relation to that income year if section 820-48 applies to the entity in relation to that income year.

820-46(6)    
Subsection (5) applies despite subsection 820-47(1) .