Taxation Laws Amendment Act (No. 4) 2002 (53 of 2002)

Schedule 1   Thin capitalisation

Part 1   Amendments

Income Tax Assessment Act 1997

29   Section 820-910

Repeal the section, substitute:

820-910 Associate entity debt

(1) This section applies to an entity (the relevant entity ) that is an *outward investing entity (non-ADI), or an *inward investing entity (non-ADI), for a period (the relevant period ) that is all or a part of an income year.

(2) This section also applies, for the relevant entity, to each entity ( relevant associate entity ) that is an *associate entity of the relevant entity and that satisfies all of the following:

(a) one of the following applies to the relevant associate entity:

(i) the relevant associate entity is an *outward investing entity (non-ADI), an *inward investment vehicle (general), or an *inward investment vehicle (financial), for the relevant period;

(ii) the relevant associate entity is an *inward investor (general) or an *inward investor (financial) for the relevant period, and it carries on its *business in Australia at or through one or more of its *Australian permanent establishments throughout the relevant period;

(b) both of the following apply to the relevant associate entity:

(i) the total *debt deductions of the relevant associate entity and all its associate entities for the income year are more than $250,000;

(ii) the result of applying the formula in section 820-37 to the relevant associate entity for the income year is less than 0.9;

(c) the relevant associate entity is not an *exempt entity for the income year.

Note: Paragraph (b) corresponds to the threshold tests for this Division set out in sections 820-35 and 820-37.

(3) The relevant entity's associate entity debt at a particular time during the relevant period is the total value of all the *debt interests held by the relevant entity at that time that satisfy all of the following:

(a) the interests are *on issue at that time;

(b) each of the interests was *issued by a relevant associate entity;

(c) each of the interests gives rise to costs:

(i) that are *debt deductions, for an income year, of the relevant associate entity that issued the interest; and

(ii) to the extent that the costs are not amounts mentioned in paragraph 820-40(2)(c) and are costs ordinarily payable to an entity other than the relevant entity - that are assessable income of the relevant entity for an income year;

(d) the terms and conditions for each of the interests are those that would apply if the relevant entity and the relevant associate entity that issued the interest were dealing at arm's length with each other.

(4) For the purposes of subsection (3), take into account the value of a *debt interest issued by a *foreign entity only to the extent that the interest is attributable to any of the following assets that are held by the foreign entity throughout the relevant period:

(a) assets that are attributable to the foreign entity's *Australian permanent establishments;

(b) other assets held by the foreign entity for the purposes of producing the foreign entity's assessable income.