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 820-50   Amount of debt deduction disallowed  

820-50(1)    
The amount (the total disallowed amount ) disallowed under subsection 820-46(1) of the * debt deductions of an entity for an income year is:

(a)    if the entity has not made a choice under subsection 820-46(3) or (4) in relation to the income year (fixed ratio test applies) - the amount by which the entity ' s * net debt deductions for the income year exceed the entity ' s * fixed ratio earnings limit for the income year (see section 820-51 ); or

(b)    if the entity has made a choice under subsection 820-46(3) in relation to the income year (group ratio test applies) - the amount by which the entity ' s net debt deductions for the income year exceed the entity ' s * group ratio earnings limit for the income year (see section 820-51 ); or

(c)    if the entity has made a choice under subsection 820-46(4) in relation to the income year (third party debt test applies) - the amount by which the entity ' s debt deductions for the income year exceed the entity ' s * third party earnings limit for the income year (see section 820-427A ).

Note 1:

The disallowed amount also does not form part of the cost base of a CGT asset. See section 110-54 .

Note 2:

The entity ' s net debt deductions for the income year can be a negative amount.

820-50(2)    
The amount by which a particular * debt deduction is disallowed as a result of subsection (1) is worked out as follows:

(a)    first, divide the total disallowed amount by the * debt deductions of the entity for the income year;

(b)    next, multiply the amount of the particular debt deduction by the result of paragraph (a) .

820-50(3)    
An entity ' s net debt deductions for an income year is worked out as follows:

(a)    first, work out the sum of the entity ' s *debt deductions (disregarding this Division other than Subdivision 820-EAA ) for the income year;

(b)    next, work out the sum of each amount included in the entity ' s assessable income for that year that is:

(i) interest, an amount in the nature of interest, or any other amount that is economically equivalent to interest; or

(ii) any amount directly incurred by another entity in obtaining or maintaining the financial benefits received, or to be received, by the other entity under a * scheme giving rise to a * debt interest; or

(iii) any other expense that is incurred by another entity and that is specified in the regulations made for the purposes of this subparagraph;

(c)    next, subtract the result of paragraph (b) from the result of paragraph (a) .

820-50(4)    
To avoid doubt, an entity ' s net debt deductions for an income year can be a negative amount.