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

Schedule 1   Thin capitalisation

Part 1   Amendments

Income Tax Assessment Act 1997

34   Subsection 820-920(3) (method statement)

Repeal the method statement, substitute:

Method statement

Step 1. Work out the value, as at that particular time, of all the *associate entity equity of the relevant entity that is attributable to the *associate entity (disregarding the value of any *debt interest *issued by the associate entity that is held by the relevant entity at that time).

Step 2. Work out the value, as at that time, of all the *equity capital of the *associate entity that is attributable to the relevant entity, then reduce it by so much of the value of all the *equity interests as satisfies both of the following:

(a) the relevant entity holds the equity interests in the associate entity at that time;

(b) the value of the equity interests is all or a part of the relevant entity's *controlled foreign entity equity at that time.

Step 3. Reduce the result of step 1 by the result of step 2. However, if the result of step 2 is a negative amount, the result of step 2 is taken to be nil for the purpose of this step.

Step 4. Multiply the result of step 3 by:

(a) 20/21 if the *associate entity excess amount is applied for the purpose of working out the *total debt amount of the relevant entity for that period under subsection 820-100(2), 820-200(2) or 820-210(2); or

(b) 3/4 if the associate entity excess amount is applied for the purpose of working out the *adjusted on-lent amount of the relevant entity for that period under subsection 820-100(3), 820-200(3) or 820-210(3); or

(c) 3/4 if the associate entity excess amount is applied for the purpose of working out the *safe harbour debt amount of the relevant entity for that period under section 820-95, 820-195 or 820-205; or

(d) the result of step 4 of the method statement in subsection (1) or (2) of section 820-110 (as appropriate) if the associate entity excess amount is applied for the purpose of working out the *worldwide gearing debt amount of the relevant entity for that period.

The result of this step is the premium excess amount .