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 8/10)
Character Range: 7126456–7129184

the result of applying the method statement in this section.

      Method statement
           Step 1. Divide the entity's *statement worldwide debt for the income year by the entity's *statement worldwide equity for that year.
           Step 2. Add 1 to the result of step 1.
           Step 3. Divide the result of step 1 by the result of step 2.
           Step 4. Multiply the result of step 3 in this method statement by the result of step 5 in the method statement in subsection 820‑210(2).
           Step 5. Add to the result of step 4 the average value, for that year, of the entity's *zero‑capital amount that has arisen because of the Australian investments mentioned in step 1 of the method statement in subsection 820‑210(2).
           Step 6. Add to the result of step 5 the average value, for that year, of the entity's *associate entity excess amount. The result of this step is the worldwide gearing debt amount.
Example: MSR Limited, a company that is not an Australian entity, has investments in Australia. MSR Limited has statement worldwide debt of $90 million and statement worldwide equity of $30 million. The result of applying step 1 is therefore 3. Dividing 3 by 4 (through applying steps 2 and 3) and multiplying the result by $100 million (which is the result of step 5 of the method statement in subsection 820‑210(2)) equals $75 million. The zero‑capital amount is $5 million. Adding that amount to $75 million results in $80 million. As the company does not have any associate entity excess amount, the worldwide gearing debt amount is therefore $80 million.

820‑220  Amount of debt deduction disallowed
 (1) If subparagraph 820‑185(1A)(b)(i) applies, the amount (the total disallowed amount) disallowed under subsection 820‑185(1) of the *debt deductions of an entity for an income year is the amount by which those debt deductions exceed the entity's *third party earnings limit for the income year (see section 820‑427A).
Note: The disallowed amount also does not form part of the cost base of a CGT asset. See section 110‑54.
 (2) The amount by which a particular *debt deduction is disallowed as a result of subsection (1) is worked out as follows:
 (a) first, divide the total disallowed amount by the *debt deductions of the entity for the income year;
 (b) next, multiply the amount of the particular debt deduction by the result of paragraph (a).
 (3) If subparagraph 820‑185(1A)(b)(ii) applies, the amount of a *debt deduction of an entity for an 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