Document ID: chunk:federal_register_of_legislation:C2025C00029:section:3:p3
Version: federal_register_of_legislation:C2025C00029
Segment Type: section
Provision Reference: s 3 (pt 3/7)
Character Range: 7137890–7141004

the extent that those shares are part of the entity's eligible tier 1 capital (within the meaning of the *prudential standards).

820‑305  Minimum capital amount
  The entity's minimum capital amount for an income year is the least of the following amounts:
 (a) the *safe harbour capital amount;
 (b) the *arm's length capital amount;
 (c) the *worldwide capital amount.
Note: The entity cannot use the worldwide capital amount if the entity is also a foreign controlled Australian entity throughout that year, see section 820‑320.

820‑310  Safe harbour capital amount
 (1) The safe harbour capital amount is the result of applying the method statement in this section.

      Method statement
           Step 1. Work out the average value, for the income year, of all the entity's:

                (aa) *risk‑weighted assets; and
                (ab) intangible assets comprising capitalised software expenses;

            that are attributable to none of the following:

                (a) the entity's *overseas permanent establishments;
                (b) assets comprised by the *controlled foreign entity equity of the entity (other than controlled foreign entity equity attributable to the entity's overseas permanent establishments);
                (c) assets for which *prudential capital deductions must be made by the entity (other than prudential capital deductions attributable to the entity's overseas permanent establishments).

           Step 2. Multiply the result of step 1 by 6%.
           Step 3. Add to the result of step 2 the average value, for that year, of all the *tier 1 prudential capital deductions for the entity, to the extent that they are not attributable to:

                (a) any of the entity's *overseas permanent establishments; or
                (b) any *Australian controlled foreign entities of which the entity is an *Australian controller; or
                (c) any of the entity's goodwill or intangible assets which relate to the excess mentioned in paragraph 5.3 of *accounting standard AASB 1038, as issued on 17 November 1998, to the extent that the excess is referrable to *VBIF; or

                  Note: Paragraph 5.3 of that accounting standard applies to any excess of the net market values of an interest in a subsidiary over the net amount of that subsidiary's assets and liabilities.

                (d) any of the entity's intangible assets comprising capitalised software expenses.

            The result of this step is the safe harbour capital amount.
Example: The Southern Cross Bank is an Australian bank that carries on its banking business through its overseas permanent establishments and through foreign entities that it controls. For the income year, its average value of risk‑weighted assets and intangible assets comprising capitalised software expenses is $150 million (having discounted those assets that are excluded by step 1) and the average value of its relevant tier 1 prudential capital deductions is $2 million. Multiplying $150 million by 6% equals $9 million, which is the result of step 2. Adding $2 million