Document ID: chunk:federal_register_of_legislation:C2025C00029:section:2:p9
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 2 (pt 9/10)
Character Range: 7128949–7131678

income year disallowed under subsection 820‑185(1) is worked out using the following formula:
where:
average debt means the sum of:
 (a) the average value, for the income year, of the entity's *debt capital that is covered by step 1 of the method statement in subsection 820‑185(3); and
 (b) the average value, for that year, of the entity's *cost‑free debt capital that is covered by step 4 of that method statement.
debt deduction means each *debt deduction of the entity for that year.
excess debt means the amount by which the *adjusted average debt (see subsection 820‑185(3)) exceeds the entity's *maximum allowable debt for that year.
Note: The disallowed amount also does not form part of the cost base of a CGT asset. See section 110‑54.

820‑225  Application to part year periods
 (1) This subsection disallows all or a part of each *debt deduction of an entity for an income year that is an amount incurred by the entity during a period that is a part of that year, if:
 (a) the entity is an *inward investing financial entity (non‑ADI) for that period, but is not also an *outward investing financial entity (non‑ADI) for all or any part of that period; and
 (b) the entity's *adjusted average debt for that period exceeds the entity's *maximum allowable debt for that period.
Note: To determine whether an entity is an inward investing financial entity (non‑ADI) for a period, see subsection 820‑185(2).
 (2) The entity's adjusted average debt for that period is the result of applying the method statement in this subsection.

      Method statement
           Step 1. Work out the average value, for that period, of all the *debt capital of the entity that gives rise to *debt deductions of the entity for that or any other income year.
           Step 2. Reduce the result of step 1 by the average value, for that period, of:

                (a) if the entity is an *inward investment vehicle (financial) for that period—all the *associate entity debt of the entity; or
                (b) if the entity is an *inward investor (financial) for that period—all the associate entity debt of the entity, to the extent that it is attributable to the entity's *Australian permanent establishments.

           Step 3. If the entity is a *financial entity throughout that period, add to the result of step 2 the average value, for that period, of the entity's *borrowed securities amount.
           Step 4. Add to the result of step 3 the average value, for that period, of the *cost‑free debt capital of the entity. The result of this step is the adjusted average debt.
Note: To calculate an average value for the purposes of this Division, see Subdivision 820‑G.
 (2A) The entity's *adjusted average debt does not