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TAXATION LAWS AMENDMENT ACT (NO. 5) 2003 NO. 142, 2003 - SCHEDULE 3

- Thin Capitalisation: amendments taking effect on 1 July 2003 Part 1—Definition of equity capital and related concepts

Income Tax Assessment Act 1997

1 Subsection 820-300(3)

Omit " * equity capital", substitute " * ADI equity capital".

2 Subsection 820-300(3)

Omit "equity capital" (second occurring), substitute "ADI equity capital".

3 Subsection 820-330(2)

Omit " * equity capital", substitute " * ADI equity capital".

4 Subsection 820-330(2)

Omit "equity capital" (second occurring), substitute "ADI equity capital".

5 Paragraph 820-395(3)(a)

Omit " * equity capital", substitute " * ADI equity capital".

6 Section 820-589

Repeal the section, substitute:

820-589 How Subdivision 820-D applies to a MEC group
(1)
This section has effect for the purposes of working out the * adjusted average equity capital of the * head company of a * MEC group for a period (the test period ) that is all or part of an income year if Subdivision 820-D applies to the head company in relation to that period.

Note: Section 820-587 extends the application of Subdivision 820-D.

(2)
The * head company's * ADI equity capital at a particular time during the test period is to be worked out:

(a) taking into account an * equity interest or * debt interest in the head company only if it is held at that time by an entity that is not a member of the group; and
(b) on the basis that an equity interest or debt interest in an * eligible tier-1 company (other than the head company) that is a member of the group at that time is treated as an equity interest or debt interest (as appropriate) in the head company, but only if it is held at that time by an entity that is not a member of the group; and
(c) on the basis of the information that would be contained in a set of consolidated accounts:
(i) prepared, in accordance with the * accounting standard on consolidated accounts, as at that time; and
(ii) covering the members of the group as at that time.

7 Subsection 820-611(2)

Omit all the words after "820-617".

8 Subsections 820-613(2) and (3)

Repeal the subsections, substitute:

Adjusted average equity capital

(2)
The * adjusted average equity capital of the * head company or single company for the test period is increased by the average value, for the period, of the amount worked out under subsection (3).

Note 1: In the case of a choice under section 820-599, paragraph 820-603(4)(b) treats the single company and the relevant Australian permanent establishments as a consolidated group.

Note 2: To calculate an average value for the purposes of this Division, see Subdivision 820-G.

(3)
The amount worked out under this subsection as at a particular day is the total of the amounts worked out under the following paragraphs for each * Australian permanent establishment through which the * foreign bank carried on its banking business in Australia on that day:

(a) the * ADI equity capital of the foreign bank, as at the end of that day, that:
(i) is attributable to that Australian permanent establishment; but
(ii) has not been allocated to the * OB activities of the foreign bank; and
(b) the amounts that, as at the end of that day:
(i) are made available by the foreign bank to the Australian permanent establishment as loans to the Australian permanent establishment; and
(ii) do not give rise to any * debt deductions of the foreign bank for the income year or any other income year.

Note: The amounts are to be worked out, so far as practicable, on the basis of the information that would be contained in a set of consolidated accounts. See section 820-611.

9 Subsection 820-615(2)

Repeal the subsection, substitute:

Average equity capital

(2)
The average equity capital of the * head company or single company for the test period is:

(a) the average value, for that period, of all the * ADI equity capital of the company; plus
(b) the average value, for that period, of the amount worked out under subsection 820-613(3).

Note 1: In the case of a choice under section 820-599, paragraph 820-603(4)(b) treats the single company and the relevant Australian permanent establishments as a consolidated group.

Note 2: To calculate an average value for the purposes of this Division, see Subdivision 820-G.

10 Subsection 995-1(1)

Insert:

"ADI equity capital" of an entity at a particular time means the total of the following:

(a) all the entity's * equity capital at that time; and
(b) the total value of all the * debt interests * issued by the entity that satisfy all of the following:
(i) at that time, the interests are * on issue and have been on issue for 90 days or more;
(ii) none of the interests gives rise to any cost, at any time, that is covered by paragraph 820-40(1)(a).

A debt interest is treated as having satisfied subparagraph (b)(i) at that time if it was on issue at that time, and the total period for which it remains on issue is 90 days or more.

11 Subsection 995-1(1) (definition of equity capital )

Repeal the definition, substitute:

"equity capital" of an entity at a particular time means the total of the following as at that time:

(a) the issue price (however described) of each * equity interest in the entity that is still * on issue, reduced by so much (if any) of the issue price as remains unpaid;
(b) the entity's general reserves and asset revaluation reserves;
(c) the entity's retained earnings;
(d) the entity's net earnings (if any) for the current year, reduced by:
(i) the * tax the entity expects to pay in respect of those net earnings; and
(ii) so much of each distribution to the entity's * members that has been made or declared as at that time as is attributable to the entity's earnings for the current year;
(e) if the entity is a * corporate tax entity—provisions for * distributions of profit;
(f) if paragraph (e) does not apply—provisions for distributions to the entity's * members;

reduced by the total of the following as at that time:

(g) the entity's negative retained earnings (if any);
(h) the entity's net loss (if any) for the current year.

12 Subsection 995-1(1) (definition of equity interest in an entity)

Repeal the definition, substitute:

"equity interest" in an entity has the meaning given by:

(a) in the case of a company—Subdivision 974-C; and
(b) in the case of a trust or partnership—section 820-930.

13 Subsection 995-1(1) (definition of equity interest in a company)

Repeal the definition.

14 Subsection 995-1(1) (definition of worldwide equity )

Repeal the definition, substitute:

"worldwide equity", of an entity and at a particular time, means the total of the following amounts:

(a) all the * equity capital of the entity as at that time, but worked out disregarding * equity interests in the entity held at that time by * Australian controlled foreign entities (the controlled entities ) of which the entity is an * Australian controller at that time;
(b) all the equity capital of the controlled entities as at that time, but worked out disregarding equity interests in the controlled entities held at that time by:
(i) the entity; or
(ii) other controlled entities.

15 Application

The amendments made by this Part apply in relation to an income year that begins on or after 1 July 2003.

Part 2—Assets and liabilities

Income Tax Assessment Act 1997

16 Subsection 820-680(1)

After "the * accounting standards", insert "in determining what are its assets and liabilities and".

17 After subsection 820-680(1)

Insert:

(1A)
In particular, for the purposes of this Division, the entity has an asset or liability at a particular time if, and only if, according to the * accounting standards, the asset or liability can or must be recognised at that time.

Requirements for revaluation of assets

18 Application

The amendments made by this Part apply in relation to an income year that begins on or after 1 July 2003, and are not intended to affect the interpretation of subsection 820-680(1) as applying in relation to an income year that starts before that day.


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