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

57   Subsections 820-185(1) and (2)

Repeal the subsections, substitute:

Thin capitalisation rule

(1A) Subsection (1) applies if:

(a) an entity is an *inward investing financial entity (non-ADI) (see subsection (2)) for all of an income year, but is not also an *outward investing financial entity (non-ADI) (see section 820-85) for all or any part of that 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 820-190) 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; or

(b) if paragraph (1A)(b)(ii) applies - all or a part of each debt deduction of the entity for the income year.

Note 1: To work out the amount to be disallowed, see section 820-220.

Note 2: For the rules that apply to an entity that is an outward investing financial entity (non-ADI) as well as an inward investing financial entity (non-ADI), see Subdivision 820-B.

Note 3: For the rules that apply to an entity that is an inward investing financial entity (non-ADI) for only a part of an income year, see section 820-225 in conjunction with subsection (2) of this section.

Note 4: To calculate an average value for the purposes of this Division, see Subdivision 820-G.

Note 5: A consolidated group or MEC group may be an inward investing financial entity (non-ADI) to which this Subdivision applies: see Subdivisions 820-FA and 820-FB.

Inward investing financial entity (non-ADI)

(2) The entity is an inward investing financial entity (non-ADI) for a period that is all or a part of an income year if, and only if, it is:

(b) an *inward investment vehicle (financial) for that period (as set out in item 1 of the following table); or

(d) an *inward investor (financial) for that period (as set out in item 2 of that table).

Note 1: To determine whether an entity is a foreign controlled Australian entity, see Subdivision 820-H.

Note 2: An entity covered by item 2 of the table may be required to keep certain records, see Subdivision 820-L.

(2A) However, the entity is not an inward 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 *inward 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).