Commonwealth Consolidated Acts

INCOME TAX ASSESSMENT ACT 1997 - SECT 820.50

  (1)   The amount (the total disallowed amount ) disallowed under subsection   820 - 46(1) of the * debt deductions of an entity for an income year is:

  (a)   if the entity has not made a choice under subsection   820 - 46(3) or (4) in relation to the income year (fixed ratio test applies)--the amount by which the entity's * net debt deductions for the income year exceed the entity's * fixed ratio earnings limit for the income year (see section   820 - 51); or

  (b)   if the entity has made a choice under subsection   820 - 46(3) in relation to the income year (group ratio test applies)--the amount by which the entity's net debt deductions for the income year exceed the entity's * group ratio earnings limit for the income year (see section   820 - 51); or

  (c)   if the entity has made a choice under subsection   820 - 46(4) in relation to the income year (third party debt test applies)--the amount by which the entity's debt deductions for the income year exceed the entity's * third party earnings limit for the income year (see section   820 - 427A).

Note 1:   The disallowed amount also does not form part of the cost base of a CGT asset. See section   110 - 54.

Note 2:   The entity's net debt deductions for the income year can be a negative amount.

  (2)   The amount by which a particular * debt deduction is disallowed as a result of subsection   (1) is worked out as follows:

  (a)   first, divide the total disallowed amount by the * debt deductions of the entity for the income year;

  (b)   next, multiply the amount of the particular debt deduction by the result of paragraph   (a).

  (3)   An entity's net debt deductions for an income year is worked out as follows:

  (a)   first, work out the sum of the entity's * debt deductions (disregarding this Division other than Subdivision   820 - EAA) for the income year;

  (b)   next, work out the sum of each amount included in the entity's assessable income for that year that is:

  (i)   interest, an amount in the nature of interest, or any other amount that is economically equivalent to interest; or

  (ii)   any amount directly incurred by another entity in obtaining or maintaining the financial benefits received, or to be received, by the other entity under a * scheme giving rise to a * debt interest; or

  (iii)   any other expense that is incurred by another entity and that is specified in the regulations made for the purposes of this subparagraph;

  (c)   next, subtract the result of paragraph   (b) from the result of paragraph   (a).

  (4)   To avoid doubt, an entity's net debt deductions for an income year can be a negative amount.