Tax and Superannuation Laws Amendment (2014 Measures No. 4) Act 2014 (110 of 2014)

Schedule 1   Thin capitalisation

Part 6   Worldwide gearing debt amount for inward investing entities (non-ADI)

Income Tax Assessment Act 1997

20   After section 820-215

Insert:

820-216 Worldwide gearing debt amount - inward investment vehicle (general)

If the entity is an *inward investment vehicle (general) for the income year, and is not also an *outward investor (general) for all or any part of that year, the worldwide gearing debt amount is the result of applying the method statement in this section.

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 4 in the method statement in section 820-195.

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: SJP Limited, a company that is an Australian entity, has a worldwide parent entity in Japan. SJP 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 4 of the method statement in section 820-195) 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.

820-217 Worldwide gearing debt amount - inward investment vehicle (financial)

If the entity is an *inward investment vehicle (financial) for the income year, and is not also an *outward investor (financial) for all or any part of that year, the worldwide gearing debt amount is the result of applying the method statement in this section.

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 5 in the method statement in subsection 820-200(2).

Step 5. Add to the result of step 4 the average value, for that year, of the entity’s *zero-capital amount.

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: RGR Limited, a company that is an Australian entity, has a worldwide parent entity in France. RGR 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 5 of the method statement in subsection 820-200(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.

820-218 Worldwide gearing debt amount - inward investor (general)

If the entity is an *inward investor (general) for the income year, the worldwide gearing debt amount is the result of applying the method statement in this section.

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 4 in the method statement in section 820-205.

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: MLO Limited, a company that is not an Australian entity, has investments in Australia. MLO 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 4 of the method statement in section 820-205) 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.

820-219 Worldwide gearing debt amount - inward investor (financial)

If the entity is an *inward investor (financial) for the income year, the worldwide gearing debt amount is the result of applying the method statement in this section.

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 5 in the method statement in subsection 820-210(2).

Step 5. Add to the result of step 4 the average value, for that year, of the entity’s *zero-capital amount that has arisen because of the Australian investments mentioned in step 1 of the method statement in subsection 820-210(2).

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: MSR Limited, a company that is not an Australian entity, has investments in Australia. MSR 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 5 of the method statement in subsection 820-210(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.