Treasury Laws Amendment (Making Multinationals Pay Their Fair Share - Integrity and Transparency) Act 2024 (23 of 2024)

Schedule 2 Thin capitalisation

Part 1 Amendments

Income Tax Assessment Act 1997

33 Subsections 820-85(1) and (2)

Repeal the subsections, substitute:

Thin capitalisation rule

(1A) Subsection (1) applies if:

(a) an entity is an *outward investing financial entity (non-ADI) (see subsection (2)) for all of an income year; and

(b) either:

(i) the entity has made a choice under subsection (2C) in relation to the income year; or

(ii) otherwise - the entity's *adjusted average debt (see subsection (3)) for the income year exceeds its *maximum allowable debt (see section 820-90) for the income year.

Note: 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.

(1) This subsection disallows:

(a) if paragraph (1A)(b)(i) applies - all or part of the entity's *debt deductions for the income year (to the extent that they are not attributable to an *overseas permanent establishment of the entity); or

(b) if paragraph (1A)(b)(ii) applies - all or a part of each debt deduction of the entity for the income year (to the extent that it is not attributable to an overseas permanent establishment of the entity).

Note 1: To work out the amount to be disallowed, see section 820-115.

Note 2: For the rules that apply to an entity that is an outward investing financial entity (non-ADI) for only a part of an income year, see section 820-120 in conjunction with subsection (2) of this section.

Note 3: A consolidated group or MEC group may be an outward investing financial entity (non-ADI) to which this Subdivision applies: see Subdivisions 820-FA and 820-FB.

Outward investing financial entity (non-ADI)

(2) The entity is an outward investing financial entity (non-ADI) for a period that is all or a part of an income year if, and only if, it is an *outward investor (financial) for that period (according to the items of the following table).

Outward investing financial entity (non-ADI)
Item	If:	and:	then:
1	the entity (the relevant entity ) is one or both of the following throughout a period that is all or a part of an income year: (a) an Australian controller of at least one Australian controlled foreign entity (not necessarily the same Australian controlled foreign entity throughout that period); (b) an Australian entity that carries on a business at or through at least one overseas permanent establishment (not necessarily the same permanent establishment throughout that period)	the relevant entity is a *financial entity throughout that period	the relevant entity is an outward investing financial entity (non-ADI) for that period
2	(a) the entity (the relevant entity ) is an Australian entity throughout a period that is all or a part of an income year; and (b) throughout that period, the relevant entity is an associate entity of another Australian entity; and (c) that other Australian entity is an outward investing financial entity (non-ADI) or an outward investing entity (ADI) for that period	the relevant entity is a *financial entity throughout that period	the relevant entity is an outward investing financial entity (non-ADI) for that period

Outward investing financial entity (non-ADI)

Item

If:

and:

then:

the entity (the relevant entity ) is one or both of the following throughout a period that is all or a part of an income year:

(a) an *Australian controller of at least one *Australian controlled foreign entity (not necessarily the same Australian controlled foreign entity throughout that period);

(b) an Australian entity that carries on a *business at or through at least one *overseas permanent establishment (not necessarily the same permanent establishment throughout that period)

the relevant entity is a *financial entity throughout that period

the relevant entity is an outward investing financial entity (non-ADI) for that period

(a) the entity (the relevant entity ) is an *Australian entity throughout a period that is all or a part of an income year; and

(b) throughout that period, the relevant entity is an *associate entity of another Australian entity; and

(c) that other Australian entity is an *outward investing financial entity (non-ADI) or an *outward investing entity (ADI) for that period

the relevant entity is a *financial entity throughout that period

the relevant entity is an outward investing financial entity (non-ADI) for that period

Note: To determine whether an entity is an Australian controller of an Australian controlled foreign entity, see Subdivision 820-H.

(2A) However, the entity is not an outward investing financial entity (non-ADI) for a period that is all or a part of an income year if it is a *general class investor for that year.

(2B) Subsection (2A) does not apply for the purposes of subsection 820-46(2) (definition of general class investor ).

(2C) An entity that is an *outward investing financial entity (non-ADI) for a period that is all or part of an income year may make a choice under this subsection to apply the third party debt test in relation to that income year.

(2D) Section 820-47 applies in relation to a choice under subsection (2C) in the same way that it applies in relation to a choice under subsection 820-46(3) or (4).

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