Screen whether the thin capitalisation rules limit the debt deductions
Key facts
- Human involvement
- YellowClose supervision
- How AI is used
- From the group structure and the debt-deduction total the lawyer supplies, record whether the entity is an Australian entity with overseas investments, an Australian entity that is foreign controlled, or a foreign entity with investments in Australia, and the total debt deductions of the entity and its associate entities. Note the general-class-investor classification for an income year commencing on or after 1 July 2023 where the entity is not a financial entity or an ADI for all or part of the year. Do not calculate a deduction limit.
- What the lawyer must review
- The lawyer decides whether the rules apply, which test limits the deductions, and whether the debt deduction creation rules still apply to an entity that is otherwise excluded. The lawyer checks section 820-35 before relying on the $2 million figure.
- Written for / version
- US
Open a jurisdiction version of this task to see which instruments apply: US
Who does what
| Role | What they do |
|---|---|
| Assistance | From the group structure and the debt-deduction total the lawyer supplies, record whether the entity is an Australian entity with overseas investments, an Australian entity that is foreign controlled, or a foreign entity with investments in Australia, and the total debt deductions of the entity and its associate entities. Note the general-class-investor classification for an income year commencing on or after 1 July 2023 where the entity is not a financial entity or an ADI for all or part of the year. Do not calculate a deduction limit. |
| Lawyer | Set the scope, supervise the work closely, verify every part relied on, resolve omissions and exceptions, and approve the exact output. |
Checklist
- The page says the rules do not apply if the total debt deductions of the entity and all its associate entities for the year are $2 million or less, and later says entities are not affected where those deductions are less than the $2 million de minimis in section 820-35. Read section 820-35 before applying either formulation.
- For an income year commencing on or after 1 July 2023, an affected entity that is not a financial entity or an ADI for all or part of the year is classified as a general class investor. The previous law continues for an Australian plantation forestry entity.
- The Australian assets threshold in section 820-37 requires, among other conditions, that average Australian assets of the entity and its associates are 90 per cent or more of average total assets.
- An entity excluded from the general rules by section 820-37 may still be subject to the debt deduction creation rules in Subdivision 820-EAA. Do not close the file on the exclusion alone.
Sources
These are suggested working checks. Confirm the required checking with the responsible lawyer before work starts; the checking approach does not establish permission to use AI.