Document ID: chunk:federal_register_of_legislation:C2025C00029:section:2:p8
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 2 (pt 8/8)
Character Range: 7101385–7103815

does not form part of the cost base of a CGT asset. See section 110‑54.

820‑120  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 (to the extent that it is not attributable to an *overseas permanent establishment of the entity), if:
 (a) the entity is an *outward investing financial entity (non‑ADI) for 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 outward investing entity (non‑ADI) for that period, see subsection 820‑85(2).
 (2) The entity's adjusted average debt for that period is the result of applying the method statement in this subsection. In applying the method statement, disregard any amount that is attributable to the entity's *overseas permanent establishments.

      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 all the *associate entity debt of the entity.
           Step 3. Reduce the result of step 2 by the average value, for that period, of all the *controlled foreign entity debt of the entity.
           Step 4. If the entity is a *financial entity throughout that period, add to the result of step 3 the average value, for that period, of the entity's *borrowed securities amount.
           Step 5. Add to the result of step 4 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.
 (3) The entity's *adjusted average debt does not exceed its *maximum allowable debt if the adjusted average debt is nil or a negative amount.
 (4) For the purposes of determining:
 (a) the *maximum allowable debt for the period mentioned in subsection (1); and
 (b) the amount of each *debt deduction to be disallowed;
sections 820‑90 to 820‑115 apply in relation to that entity and that period with the modifications set out in the following table:

Modifications of sections 820‑90 to 820‑115
Item                                         Provisions                  Modifications