Commonwealth: Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024 (Cth)

Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024 No. 23, 2024 An Act to amend the law relating to corporations and taxation, and for related purposes Contents 1 Short title 2 Commencement 3 Schedules 4 Review of operation of amendments Schedule 1—Multinational tax transparency—disclosure of subsidiaries Corporations Act 2001 Schedule 2—Thin capitalisation Part 1—Amendments Income Tax Assessment Act 1936 Income Tax Assessment Act 1997 Taxation Administration Act 1953 Part 2—Application Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024 No. 23, 2024 An Act to amend the law relating to corporations and taxation, and for related purposes [Assented to 8 April 2024] The Parliament of Australia enacts: 1 Short title This Act is the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024. 2 Commencement (1) Each provision of this Act specified in column 1 of the table commences, or is taken to have commenced, in accordance with column 2 of the table. Any other statement in column 2 has effect according to its terms. Commencement information Column 1 Column 2 Column 3 Provisions Commencement Date/Details 1. Sections 1 to 4 and anything in this Act not elsewhere covered by this table The day this Act receives the Royal Assent. 8 April 2024 2. Schedule 1 The day after this Act receives the Royal Assent. 9 April 2024 3. Schedule 2 The first 1 January, 1 April, 1 July or 1 October to occur after the day this Act receives the Royal Assent. 1 July 2024 Note: This table relates only to the provisions of this Act as originally enacted. It will not be amended to deal with any later amendments of this Act. (2) Any information in column 3 of the table is not part of this Act. Information may be inserted in this column, or information in it may be edited, in any published version of this Act. 3 Schedules Legislation that is specified in a Schedule to this Act is amended or repealed as set out in the applicable items in the Schedule concerned, and any other item in a Schedule to this Act has effect according to its terms. 4 Review of operation of amendments (1) The Minister must cause an independent review to be conducted of the operation of the amendments made by Schedule 2 to this Act. Public consultation (2) The review must make provision for public consultation. Timeframe for review (3) The review must commence no later than 1 February 2026. Report (4) The persons who conduct the review must give the Minister a written report of the review within 17 months of the commencement of the review. Tabling (5) The Minister must cause a copy of the report of the review to be tabled in each House of the Parliament within 15 sitting days of that House after the Minister receives the report. Schedule 1—Multinational tax transparency—disclosure of subsidiaries Corporations Act 2001 1 After paragraph 295(1)(b) Insert: (ba) for a public company—the consolidated entity disclosure statement required by subsection (3A); and 2 After subsection 295(3) Insert: Consolidated entity disclosure statement (3A) The consolidated entity disclosure statement for a public company's financial report for a financial year is: (a) if the accounting standards require the public company to prepare financial statements in relation to a consolidated entity—a statement that includes the following information for each entity that was, at the end of the financial year, part of the consolidated entity: (i) the entity's name (if any) at that time; (ii) whether, at that time, the entity was a body corporate, partnership, or trust; (iii) whether, at that time, the entity was a trustee of a trust within the consolidated entity, a partner in a partnership within the consolidated entity, or a participant in a joint venture within the consolidated entity; (iv) if the entity is a body corporate—the place at which the entity was incorporated or formed; (v) if the entity is a body corporate with a share capital—the percentage of the entity's issued share capital (excluding any part that carries no right to participate beyond a specified amount in a distribution of either profits or capital) that was held, directly or indirectly, by the public company at that time; (vi) whether, at that time, the entity was an Australian resident (within the meaning of the Income Tax Assessment Act 1997) or a foreign resident (within the meaning of that Act); (vii) if the entity was a foreign resident as described in subparagraph (vi)—a list of each foreign jurisdiction in which the entity was, at that time, a resident for the purposes of the law of the foreign jurisdiction relating to foreign income tax (within the meaning of that Act); or (b) if paragraph (a) does not apply—a statement to that effect. 3 After paragraph 295(4)(d) Insert: (da) whether, in the directors' opinion, the consolidated entity disclosure statement required by subsection (3A) is true and correct; and 4 After paragraph 295A(2)(c) Insert: (ca) the consolidated entity disclosure statement required by subsection 295(3A) is true and correct; and 5 In the appropriate position in Chapter 10 Insert: Part 10.72—Application provisions relating to Schedule 1 to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024 1702 Application of amendments Sections 295 and 295A, as amended by Schedule 1 to the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024, apply in relation to any financial reports for a financial year commencing on or after 1 July 2023. Schedule 2—Thin capitalisation Part 1—Amendments Income Tax Assessment Act 1936 1 Subsection 262A(2AA) Omit "or 820‑980", substitute ", 820‑980 or 820‑985". 2 At the end of subsection 262A(3) Add: ; and (e) for records required to be kept under section 820‑985 of that Act—comply with subsections (2) and (3) of that section. Income Tax Assessment Act 1997 3 Section 12‑5 (at the end of table item headed "thin capitalisation") Add: previously FRT disallowed amounts.............. 820‑56 4 Subsection 230‑15(3) Omit "in relation to a *debt interest you issue" (wherever occurring). 4A Section 705‑60 (after table item 5) Insert: 5A Subtract from the result of step 5 the step 5A amount worked out under section 705‑102, which is about certain *FRT disallowed amounts accruing to the joined group before the joining time To prevent a double benefit arising from the FRT disallowed amounts 4B Section 705‑60 (table item 6, column headed "What the step requires") Omit "step 5", substitute "step 5A". 5 Section 705‑60 (after table item 6) Insert: 6A Subtract from the result of step 6 the step 6A amount worked out under section 705‑112, which is about *FRT disallowed amounts that the joining entity transferred to the *head company under section 820‑590 To stop the joined group getting benefits both through higher *tax cost setting amounts for the joining entity's assets and through FRT disallowed amounts transferred to the head company 6 Section 705‑60 (table item 7, column headed "What the step requires") Omit "step 6", substitute "step 6A". 7 Subparagraph 705‑65(5A)(b)(ii) Repeal the subparagraph, substitute: (ia) the step 5A amount under section 705‑102; or (ii) the step 6 amount under section 705‑110; or (iii) the step 6A amount under section 705‑112; 7A Paragraph 705‑65(5A)(c) After "(b)(i)", insert "or (ia)". 8 Paragraph 705‑65(5A)(d) Omit "subparagraph (b)(ii)", substitute "subparagraph (b)(ii) or (iii)". 8A Subparagraph 705‑75(5)(b)(ii) Repeal the subparagraph, substitute: (ii) the step 5A amount under section 705‑102; or (iii) the step 6 amount under section 705‑110; or (iv) the step 6A amount under section 705‑112; 8B After section 705‑100 Insert: 705‑102 FRT disallowed amounts accruing to joined group before joining time—step 5A in working out allocable cost amount (1) For the purposes of step 5A in the table in section 705‑60, the step 5A amount is the sum of all *FRT disallowed amounts of the joining entity that: (a) had not been applied by the joining entity under paragraph 820‑56(2)(b) for the income year in which the joining time occurred or any earlier income year; and (b) accrued to the joined group before the joining time (see subsection (2) of this section). (2) For the purposes of subsection (1), a *FRT disallowed amount accrued to the joined group before the joining time if and to the extent that, assuming that as it arose it were instead a profit that was accruing, a distribution of that profit would have been a distribution made to the joined group out of profits that accrued to the joined group before the joining time. (3) However, a *FRT disallowed amount is not to be taken into account under subsection (1) to the extent that it reduced the undistributed profits comprising the step 3 amount in the table in section 705‑60. 8C Section 705‑105 (heading) Omit "to 5", substitute "to 5A". 8D Section 705‑105 After "705‑100", insert ", 705‑102". 9 After section 705‑110 Insert: 705‑112 If joining entity transfers a FRT disallowed amount to the head company—step 6A in working out allocable cost amount (1) For the purposes of step 6A in the table in section 705‑60, the step 6A amount is worked out by multiplying the sum of the *FRT disallowed amounts mentioned in subsection (2) by the *corporate tax rate. (2) The *FRT disallowed amounts are the joining entity's FRT disallowed amounts that: (a) did not accrue to the joined group before the joining time (see subsection (3)); and (b) are transferred to the *head company under section 820‑590; and (c) are not cancelled under section 820‑592; to the extent that they were not applied by the joining entity under paragraph 820‑56(2)(b) in respect of the income year in which the joining time occurred or any earlier income year. (3) For the purposes of subsection (2), a *FRT disallowed amount accrued to the joined group before the joining time if and to the extent that, assuming that as it arose it were instead a profit that was accruing, a distribution of that profit would have been a distribution made to the joined group out of profits that accrued to the joined group before the joining time. 9A At the end of paragraph 705‑160(2)(c) Add: or (iii) an amount is required to be subtracted (also the second entity's profit/loss adjustment amount) under step 5A in the table in section 705‑60 (about *FRT disallowed amounts accruing to a joined group before the joining time); 9B Subsection 705‑160(2) After "subparagraph (c)(ii)", insert "or (iii)". 9C At the end of paragraph 705‑160(4)(d) Add: or (iii) an amount is required to be subtracted (also the third entity's profit/loss adjustment amount) under step 5A in the table in section 705‑60 (about *FRT disallowed amounts accruing to a joined group before the joining time); 9D Subsection 705‑160(4) After "subparagraph (d)(ii)", insert "or (iii)". 9E At the end of paragraph 705‑235(2)(b) Add: or (iii) an amount is required to be subtracted (also the second linked entity's profit/loss adjustment amount) under step 5A in the table in section 705‑60 (about *FRT disallowed amounts accruing to a joined group before the joining time); 9F Subsection 705‑235(2) After "subparagraph (b)(ii)", insert "or (iii)". 9G At the end of paragraph 705‑235(4)(c) Add: or (iii) an amount is required to be subtracted (also the third linked entity's profit/loss adjustment amount) under step 5A in the table in section 705‑60 (about *FRT disallowed amounts accruing to a joined group before the joining time); 9H Subsection 705‑235(4) After "subparagraph (c)(ii)", insert "or (iii)". 10 After paragraph 815‑140(1)(a) Insert: (aa) the entity: (i) is not a *general class investor in relation to the income year; and (ii) has not made a choice under subsection 820‑85(2C) or 820‑185(2C) in relation to the income year; and 11 Section 820‑1 Omit: Financing expenses that an entity can otherwise deduct from its assessable income may be disallowed under this Division in the following circumstances: • for an entity that is not an authorised deposit‑taking institution for the purposes of the Banking Act 1959 (an ADI)—the entity's debt exceeds the prescribed level (and the entity is therefore "thinly capitalised"); • for an entity that is an ADI—the entity's capital is less than the prescribed level (and the entity is therefore "thinly capitalised"). substitute: Financing expenses that an entity can otherwise deduct from its assessable income may be disallowed under this Division where the entity is "thinly capitalised". 12 Section 820‑5 Repeal the section. 13 Section 820‑10 (before table item 1) Insert: 1A Subdivision 820‑AA (a) how all or a part of the debt deductions claimed by an entity covered by the Subdivision may be disallowed under one of three tests (the fixed ratio test, the group ratio test or the third party debt test); and (b) how the entity can choose to apply which one of these tests applies; and (c) where the fixed ratio test applies, whether the entity can claim a special deduction in respect of amounts previously disallowed under the fixed ratio test. 14 Section 820‑10 (after table item 2) Insert: 2A Subdivision 820‑EAA how all or a part of the debt deductions claimed by an entity covered by Subdivision 820‑AA, 820‑B or 820‑C may be disallowed in relation to: (a) debt deductions in relation to the acquisition of CGT assets, or legal or equitable obligations, from associate pairs of the acquirer; or (b) debt deductions in relation to a financial arrangement that is entered into by an entity to fund etc. certain payments or distributions to one or more associate pairs of the entity. 2B Subdivision 820‑EAB (a) concepts concerning third party debt; and (b) concepts that are relevant to entities that choose to apply the third party debt test. 15 Section 820‑30 Omit "*debt capital to finance their Australian operations", substitute "*debt deductions, in financing their Australian operations". 15A After section 820‑30 Insert: 820‑31 Order of application of Subdivisions (1) First, work out if a *debt deduction of an entity for an income year is disallowed under Subdivision 820‑EAA (debt deduction limitation rules for debt deduction creation). (2) To the extent that all or part of a debt deduction is disallowed under that Subdivision, disregard the debt deduction in applying the following provisions in relation to the entity for the income year: (a) Subdivision 820‑AA; (b) Subdivision 820‑B; (c) Subdivision 820‑C. Note: The provisions mentioned in paragraphs (2)(a) to (c) may further disallow debt deductions of the entity. 16 Section 820‑32 Before "This Division", insert "(1)". 17 At the end of section 820‑32 Add: (2) Subsection (1) does not apply in relation to the following: (a) Subdivision 820‑EAA; (b) any other provision in this Division, to the extent that it relates to that Subdivision. 18 Section 820‑35 Omit "Subdivision 820‑B, 820‑C, 820‑D or 820‑E", substitute "Subdivision 820‑AA, 820‑B, 820‑C, 820‑D, 820‑E or 820‑EAA". 19 Subsection 820‑37(1) Omit "Subdivision 820‑B", substitute "Subdivision 820‑AA, 820‑B". 20 Paragraphs 820‑37(1)(a) and (b) Repeal the paragraphs, substitute: (a) either: (i) the entity is an *outward investing financial entity (non‑ADI) or an *outward investing entity (ADI) for a period that is all or any part of that year (and is not a *general class investor for that year); or (ii) assuming that the entity were a *financial entity for all of that year, it would be, for all of that year, an outward investing financial entity (non‑ADI) and not an inward investing financial entity (non‑ADI); and (b) the entity is not also an *inward investing financial entity (non‑ADI) or an *inward investing entity (ADI) for all or any part of that year; and 21 Subsection 820‑39(1) Omit "Subdivision 820‑B", substitute "Subdivision 820‑AA, 820‑B". 21A Subsection 820‑39(1) Omit "or 820‑E", substitute ", 820‑E or 820‑EAA". 22 Subsection 820‑39(2) Omit "Subdivision 820‑B", substitute "Subdivision 820‑AA, 820‑B". 22A Subsection 820‑39(2) Omit "or 820‑E", substitute ", 820‑E or 820‑EAA". 23 Subsection 820‑40(1) Omit "in relation to a *debt interest issued by the entity,". 24 Subparagraph 820‑40(1)(a)(i) Omit "or any other amount that is calculated by reference to the time value of money", substitute "or any other amount that is economically equivalent to interest". 25 Subparagraph 820‑40(1)(a)(ii) Omit "under the *scheme giving rise to the debt interest", substitute "under a *scheme giving rise to a *debt interest". 26 Subparagraph 820‑40(1)(a)(iii) Omit "under the scheme giving rise to the debt interest", substitute "under a scheme giving rise to a debt interest". 27 Paragraph 820‑40(2)(c) Omit "the debt interest", substitute "a *debt interest". 28 Paragraph 820‑40(3)(a) Repeal the paragraph. 29 After Subdivision 820‑A Insert: Subdivision 820‑AA—Thin capitalisation rules for general class investors Guide to Subdivision 820‑AA 820‑45 What this Subdivision is about This Subdivision sets out the thin capitalisation rules that apply to general class investors (that is, entities that are not dealt with in rules set out in Subdivisions 820‑B, 820‑C, 820‑D or 820‑E). These rules deal with the following matters: • how all or a part of the debt deductions claimed by the entity may be disallowed under one of three tests (the fixed ratio test, the group ratio test or the third party debt test); • how the entity can choose to apply which one of these tests applies; • where the fixed ratio test applies, whether the entity can claim a special deduction in respect of amounts previously disallowed under the fixed ratio test. Table of sections Operative provisions 820‑46 Thin capitalisation rule for general class investors 820‑47 Choices under subsection 820‑46(3) or (4) 820‑48 Where entity is taken to make third party debt test choice 820‑49 Meaning of obligor group etc. 820‑50 Amount of debt deduction disallowed 820‑51 Meaning of fixed ratio earnings limit and group ratio earnings limit 820‑52 Meaning of tax EBITDA 820‑53 Meaning of group ratio, GR group, GR group parent and GR group member 820‑54 Meaning of GR group net third party interest expense, financial statement net third party interest expense and adjusted net third party interest expense 820‑55 Meaning of entity EBITDA and GR group EBITDA 820‑56 Special deduction for previously FRT disallowed amounts—fixed ratio test 820‑57 Meaning of FRT disallowed amount 820‑58 FRT disallowed amount is treated as zero where subsequent choice means fixed ratio test does not apply 820‑59 When FRT disallowed amount is treated as zero for companies and trusts Operative provisions 820‑46 Thin capitalisation rule for general class investors Thin capitalisation rule (1) This subsection disallows all or part of an entity's *debt deductions for an income year if, for that year: (a) the entity is a *general class investor (see subsection (2)); and (b) the entity: (i) has not made a choice under subsection (3) or (4) (fixed ratio test applies); or (ii) has made a choice under subsection (3) (group ratio test applies); or (iii) has made a choice under subsection (4) (third party debt test applies). Note 1: This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $2 million or less, see section 820‑35. Note 2: To work out the amount to be disallowed, see section 820‑50. Note 3: A consolidated group or MEC group may be a general class investor to which this Subdivision applies: see Subdivisions 820‑FA and 820‑FB. General class investor (2) The entity is a general class investor for an income year if, and only if: (a) for a period that is all or part of the income year, the entity is not any of the following: (i) an *outward investing financial entity (non‑ADI); (ii) an *inward investing financial entity (non‑ADI); (iii) an *outward investing entity (ADI); (iv) an *inward investing entity (ADI); and (b) assuming that the entity were a *financial entity for all of the income year, it would be, for the income year, any of the following: (i) an outward investing financial entity (non‑ADI); (ii) an inward investing financial entity (non‑ADI). (3) An entity that is a *general class investor for an income year may make a choice under this subsection to apply the group ratio test in relation to that income year if: (a) the entity is a *GR group member for the period corresponding to the income year of a *GR group for the period; and (b) the *GR group EBITDA for the period of the GR group is greater than zero. (4) An entity that is a *general class investor for an income year may make a choice under this subsection to apply the third party debt test in relation to that income year. (5) An entity that is a *general class investor for an income year is taken to have made a choice under subsection (4) in relation to that income year if section 820‑48 applies to the entity in relation to that income year. (6) Subsection (5) applies despite subsection 820‑47(1). 820‑47 Choices under subsection 820‑46(3) or (4) (1) A choice under subsection 820‑46(3) or (4) can only be made in the *approved form. (2) A choice under subsection 820‑46(3) or (4) can only be made: (a) on or before the earlier of the following days: (i) the day the entity lodges its *income tax return for the income year; (ii) the day the entity is required to lodge its income tax return for the income year; or (b) a later day allowed by the Commissioner. (3) Subject to subsections (4) and (4A) of this section, a choice under subsection 820‑46(3) or (4) cannot be revoked. (4) An entity that makes a choice under subsection 820‑46(3) or (4) (other than a choice that is taken to have been made under subsection 820‑46(5)) may revoke the choice if the Commissioner makes a decision to that effect under subsection (6). (4A) If, under subsection 820‑46(5), an entity is taken to have made a choice to apply the third party debt test in relation to an income year: (a) the entity may not make a choice under subsection 820‑46(3) (group ratio test applies) in relation to that income year; and (b) any choice previously made under subsection 820‑46(3) by the entity in relation to that income year is revoked and taken never to have been made. (5) For the purposes of this Division (other than this section), if a choice is revoked under subsection (4) or (4A) of this section, the entity is taken to have never made the choice. (6) The Commissioner can decide, in writing, that a specified entity can revoke a specified choice under subsection 820‑46(3) or (4) (other than a choice that is taken to have been made under subsection 820‑46(5)) in relation to an income year, if the Commissioner is satisfied that all of the following conditions are satisfied: (a) the entity made the choice; (c) the entity has applied to the Commissioner, in the *approved form, to revoke the choice before the earlier of the following days: (i) the day that is 4 years after the day the entity lodged its *income tax return for the income year; (ii) the day that is 4 years after the day the entity was required to lodge its income tax return for the income year; (d) it is fair and reasonable, having regard to matters the Commissioner considers relevant, to allow the entity to revoke the choice. (7) If the Commissioner makes a decision under subsection (6), the Commissioner must give a copy of the decision to the entity as soon as practicable. 820‑48 Where entity is taken to make third party debt test choice (1) For the purposes of subsection 820‑46(5), this section applies to an entity (the first entity) in relation to an income year if: (a) the first entity is a *member of an *obligor group in relation to a *debt interest; and (b) the entity that issued the debt interest: (i) has made a choice under subsection 820‑46(4) in relation to that income year (including a choice that is taken to be made under subsection 820‑46(5) in relation to a different obligor group); and (ii) is required to lodge an *income tax return for the income year; and (c) the first entity: (i) is an *associate entity of the entity mentioned in paragraph (b) of this subsection; and (ii) is required to lodge an *income tax return for the income year. (2) For the purposes of subparagraph (1)(c)(i), in determining whether an entity is an associate entity of another entity: (aa) disregard the requirement in subsections 820‑905(1) and (2A) that the entity is an *associate of the other entity, unless only paragraph 820‑905(1)(b) applies; and (a) treat the references in paragraphs 820‑905(1)(a) and 820‑905(2A)(a) to "an *associate interest of 50% or more" as instead being a reference to "a *TC control interest of 20% or more"; and (b) treat subsection 820‑860(3) as applying for the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection); and (c) treat the purposes mentioned in subparagraphs 820‑870(1)(b)(i) and (ii) as including the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection). (3) For the purposes of subsection 820‑46(5), this section also applies to the entity mentioned in that subsection in relation to an income year if: (a) the entity has entered into a *cross staple arrangement with one or more other entities; and (b) one or more of those other entities has made a choice under subsection 820‑46(4) in relation to that income year (including a choice that is taken to be made under subsection 820‑46(5)). 820‑49 Meaning of obligor group etc. (1) Subsection (2) applies if: (a) an entity (the borrower) has issued a *debt interest to another entity (the creditor); and (b) the creditor has recourse for payment of the debt to which the debt interest relates to assets of one or more other entities (each of which is an obligor entity). (2) Each obligor entity and the borrower is a member of an obligor group in relation to the *debt interest. (3) For the purposes of paragraph (1)(b), disregard assets that are *membership interests in the borrower. 820‑50 Amount of debt deduction disallowed (1) The amount (the total disallowed amount) disallowed under subsection 820‑46(1) of the *debt deductions of an entity for an income year is: (a) if the entity has not made a choice under subsection 820‑46(3) or (4) in relation to the income year (fixed ratio test applies)—the amount by which the entity's *net debt deductions for the income year exceed the entity's *fixed ratio earnings limit for the income year (see section 820‑51); or (b) if the entity has made a choice under subsection 820‑46(3) in relation to the income year (group ratio test applies)—the amount by which the entity's net debt deductions for the income year exceed the entity's *group ratio earnings limit for the income year (see section 820‑51); or (c) if the entity has made a choice under subsection 820‑46(4) in relation to the income year (third party debt test applies)—the amount by which the entity's debt deductions for the income year exceed the entity's *third party earnings limit for the income year (see section 820‑427A). Note 1: The disallowed amount also does not form part of the cost base of a CGT asset. See section 110‑54. Note 2: The entity's net debt deductions for the income year can be a negative amount. (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) An entity's net debt deductions for an income year is worked out as follows: (a) first, work out the sum of the entity's *debt deductions (disregarding this Division other than Subdivision 820‑EAA) for the income year; (b) next, work out the sum of each amount included in the entity's assessable income for that year that is: (i) interest, an amount in the nature of interest, or any other amount that is economically equivalent to interest; or (ii) any amount directly incurred by another entity in obtaining or maintaining the financial benefits received, or to be received, by the other entity under a *scheme giving rise to a *debt interest; or (iii) any other expense that is incurred by another entity and that is specified in the regulations made for the purposes of this subparagraph; (c) next, subtract the result of paragraph (b) from the result of paragraph (a). (4) To avoid doubt, an entity's net debt deductions for an income year can be a negative amount. 820‑51 Meaning of fixed ratio earnings limit and group ratio earnings limit (1) An entity's fixed ratio earnings limit for an income year is 30% of its *tax EBITDA for the income year. (2) An entity's group ratio earnings limit for an income year is its *group ratio for the income year multiplied by its *tax EBITDA for the income year. 820‑52 Meaning of tax EBITDA (1) An entity's tax EBITDA for an income year is worked out as follows: (a) first, work out the entity's taxable income or *tax loss for the income year (disregarding the operation of this Division (other than Subdivision 820‑EAA) and treating a tax loss as a negative amount); (b) next, add the entity's *net debt deductions for the income year; (c) next, add the sum of the entity's deductions (if any) from its assessable income for the income year that are any of the following: (i) *general deductions that relate to forestry establishment and preparation costs unless those costs relate to the clearing of native forests; (ii) deductions under Divisions 40 and 43 (other than deductions for the entire amount of an expense incurred by the entity); (iii) deductions under section 70‑120; (ca) next, if the entity is an entity to which subsection 820‑60(1) applies—add the *excess tax EBITDA amount (if any) worked out under that section for the income year; (d) next, make adjustments to the result of paragraph (c) or (ca), as the case requires, in accordance with regulations (if any) made for the purposes of this paragraph. If the result of paragraph (d) is less than zero, treat it as being zero. Note: The entity's net debt deductions for the income year can be a negative amount. Tax losses from earlier income years (1A) In working out the taxable income or *tax loss of a *corporate tax entity for an income year for the purposes of subsection (1), assume that: (a) the entity chooses to deduct, under subsection 36‑17(2) or (3), all of the entity's tax losses for *loss years occurring before the income year; and (b) subsection 36‑17(5) does not apply to that choice. Franked distributions (2) For the purposes of this section, disregard Division 207, to the extent that Division results in an amount of, or a *share of, a *franking credit being included in the entity's assessable income for the income year. Dividends etc. (3) In working out the taxable income or *tax loss of an entity for the purposes of subsection (1), disregard any *dividend or *non‑share dividend paid to the entity by an *associate entity and included in the entity's assessable income under section 44 of the Income Tax Assessment Act 1936. Trusts other than AMITs (4) If the entity is a trust other than an *AMIT: (a) treat the reference in subsection (1) to the entity's taxable income as being a reference to the *net income of the entity; and (b) treat the reference in subsection (1) to the entity's *net debt deductions as being a reference to the entity's net debt deductions taken into account in working out that net income; and (c) treat the reference in subsection (1) to the entity's deductions as being a reference to the entity's deductions taken into account in working out that net income; and (d) treat the references in subsection (1) to the entity's assessable income as being a reference to the entity's assessable income taken into account in working out that net income. (5) To avoid doubt, for the purposes of references in subsection (4) to net income, do not make the assumption in subsection 102UX(3) of the Income Tax Assessment Act 1936. Beneficiaries of trusts other than AMITs (6) In working out the taxable income or *tax loss of an entity for the purposes of subsection (1), if the entity is a beneficiary of a trust other than an *AMIT, and is an *associate entity of the trust: (a) disregard the operation of the following provisions in relation to the trust: (i) Subdivision 115‑C; (ii) Division 6 of Part III of the Income Tax Assessment Act 1936; and (b) disregard distributions from the trust to the entity. Attribution managed investment trusts (6A) If the entity is an *AMIT: (a) treat the reference in subsection (1) to the entity's taxable income as being a reference to the *net income of the entity; and (b) treat the reference in subsection (1) to the entity's *net debt deductions as being a reference to the entity's net debt deductions taken into account in working out that net income; and (c) treat the reference in subsection (1) to the entity's deductions as being a reference to the entity's deductions taken into account in working out that net income; and (d) treat the references in subsection (1) to the entity's assessable income as being a reference to the entity's assessable income taken into account in working out that net income. Members of AMITs (6B) In working out the taxable income or *tax loss of an entity for the purposes of subsection (1), if the entity is a member of an *AMIT, and is an *associate entity of the AMIT: (a) disregard the operation of Division 276 in relation to the AMIT; and (b) disregard distributions from the AMIT to the entity. Partnerships (7) If the entity is a partnership: (a) treat the reference in subsection (1) to the entity's taxable income as being a reference to the *net income of the entity; and (b) treat the reference in subsection (1) to the entity's *net debt deductions as being a reference to the entity's net debt deductions taken into account in working out that net income. (c) treat the reference in subsection (1) to the entity's deductions as being a reference to the entity's deductions taken into account in working out that net income; and (d) treat the references in subsection (1) to the entity's assessable income as being a reference to the entity's assessable income taken into account in working out that net income. Partners in partnerships (8) In working out the taxable income or *tax loss of an entity for the purposes of subsection (1), if the entity is a partner in a partnership, and is an *associate entity of the partnership, disregard the operation of Division 5 of Part III of the Income Tax Assessment Act 1936. Associate entity test—TC control interest of 10% or more (9) For the purposes of subsections (3), (6), (6B) and (8), in determining whether an entity is an associate entity of another entity: (aa) disregard the requirement in subsections 820‑905(1) and (2A) that the entity is an *associate of the other entity, unless only paragraph 820‑905(1)(b) applies; and (a) treat the references in paragraphs 820‑905(1)(a) and 820‑905(2A)(a) to "an *associate interest of 50% or more" as instead being a reference to "a *TC control interest of 10% or more"; and (b) treat subsection 820‑860(3) as applying for the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection); and (c) treat the purposes mentioned in subparagraphs 820‑870(1)(b)(i) and (ii) as including the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection). Notional deductions of R&D entities (10) In working out the taxable income or *tax loss of an entity for the purposes of subsection (1), if the entity is an *R&D entity that is entitled to a notional deduction for an income year under Division 355 in relation to *R&D activities of the R&D entity, subtract an amount equivalent to the amount of the notional deduction. 820‑53 Meaning of group ratio, GR group, GR group parent and GR group member (1) If an entity is a *GR group member for a period of a *GR group for the period, the entity's group ratio for the income year corresponding to the period is worked out as follows: (a) first, work out the *GR group net third party interest expense, for that period, of the GR group; (b) next, work out the *GR group EBITDA for that period of the GR group; (c) next, divide the result of paragraph (a) by the result of paragraph (b). If the result of paragraph (b) is zero, the entity's group ratio for the income year is zero. Note: The entity must keep records in accordance with section 820‑985 if the entity works out a group ratio under this section. (2) A GR group, for a period, is: (a) if *audited consolidated financial statements for the period have been prepared for a worldwide parent entity (as described in subsection 820‑935(6))—the group comprised of all of the following: (i) the worldwide parent entity; (ii) each other entity that is fully consolidated on a line‑by‑line basis in those audited consolidated financial statements; or (b) if paragraph (a) does not apply, and *global financial statements have been prepared for the period for a *global parent entity—the group comprised of all of the following: (i) the global parent entity; (ii) each other entity that is fully consolidated on a line‑by‑line basis in those global financial statements. (3) If paragraph (2)(a) applies: (a) the GR group parent for the period of the *GR group is the worldwide parent entity mentioned in that paragraph; and (b) each of the entities mentioned in that paragraph is a GR group member for the period of the *GR group. (4) If paragraph (2)(b) applies: (a) the GR group parent for the period of the *GR group is the *global parent entity mentioned in that paragraph; and (b) each of the entities mentioned in that paragraph is a GR group member for the period of the *GR group. 820‑54 Meaning of GR group net third party interest expense, financial statement net third party interest expense and adjusted net third party interest expense (1) The GR group net third party interest expense, for a period, of a *GR group for the period, is the amount that would be the group's *financial statement net third party interest expense for the period, if: (a) where paragraph 820‑53(2)(a) applies—the *audited consolidated financial statements for the period for the *GR group parent for the period of the group were prepared on the basis that the following were treated as interest: (i) an amount in the nature of interest; (ii) any other amount that is economically equivalent to interest; or (b) where paragraph 820‑53(2)(b) applies—the *global financial statements for the period for the GR group parent for the period of the group were prepared on the basis that the following were treated as interest: (i) an amount in the nature of interest; (ii) any other amount that is economically equivalent to interest. (2) The financial statement net third party interest expense, for a period, of a *GR group for the period, is: (a) the amount of the *GR group's net third party interest expense for the period, as disclosed in the following statements: (i) if paragraph 820‑53(2)(a) applies—the *audited consolidated financial statements for the *GR group parent for the period for the GR group; (ii) if paragraph 820‑53(2)(b) applies—the *global financial statements for the GR group parent for the period for the GR group; reduced by the amount of each payment (if any) covered by subsection (3), to the extent that it was a factor in working out that net third party interest expense; or (b) if those statements do not disclose that net third party interest expense—the amount worked out as follows: (i) first, identify the amount of the group's third party interest expenses for the period disclosed in those statements; (ii) next, reduce the result of subparagraph (i) by the amount of each payment (if any) covered by subsection (3), to the extent that it was a factor in working out those third party interest expenses; (iii) next, reduce the result of subparagraph (ii) by the amount of the group's third party interest income for the period disclosed in those statements; (iv) next, increase the result of subparagraph (iii) by the amount of each payment (if any) covered by subsection (3), to the extent that it was a factor in working out that third party interest income. (3) For the purposes of subsection (2), this subsection covers a payment if: (a) the payment is made by an entity to an *associate entity of the entity; and (b) either: (i) the entity is a *GR group member for the period of the *GR group and the associate entity is not such a GR group member; or (ii) the entity is not a GR group member for the period of the GR group and the associate entity is such a GR group member. (4) The adjusted net third party interest expense, for a period, of an entity or a *GR group is: (a) for an entity—the amount that would be the entity's net interest expense for the period if the following payments were disregarded: (i) a payment that is made by the entity to an *associate entity of the entity; (ii) a payment that is made by an associate entity of the entity to the entity; or (b) for a GR group—the amount that would be the GR group's net interest expense for the period if the following payments were disregarded: (i) a payment that is made by a *GR group member of the GR group to an associate entity of any GR group member of the GR group; (ii) a payment that is made by an associate entity of a GR group member of the GR group to any GR group member of the GR group. (5) For the purposes of subsections (3) and (4), in determining whether an entity is an associate entity of another entity: (aa) disregard the requirement in subsections 820‑905(1) and (2A) that the entity is an *associate of the other entity, unless only paragraph 820‑905(1)(b) applies; and (a) treat the references in paragraphs 820‑905(1)(a) and 820‑905(2A)(a) to "an *associate interest of 50% or more" as instead being a reference to "a *TC control interest of 20% or more"; and (b) treat subsection 820‑860(3) as applying for the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection); and (c) treat the purposes mentioned in subparagraphs 820‑870(1)(b)(i) and (ii) as including the purposes of determining whether the entity is an associate entity of the other entity (as a result of paragraph (a) of this subsection). 820‑55 Meaning of entity EBITDA and GR group EBITDA (1) The entity EBITDA of an entity, for a period, is the sum of the following for the entity for the period: (a) the entity's net profit (disregarding tax expenses); (b) the entity's *adjusted net third party interest expense; (c) the entity's depreciation and amortisation expenses. (2) The GR group EBITDA, for a period, of a *GR group for the period, is the sum of the following: (a) the GR group's net profit (disregarding tax expenses); (b) the GR group's *adjusted net third party interest expense; (c) the GR group's depreciation and amortisation expenses; as disclosed in: (d) if paragraph 820‑53(2)(a) applies—the *audited consolidated financial statements for the *GR group parent for the period for the GR group; or (e) if paragraph 820‑53(2)(b) applies—the *global financial statements for the GR group parent for the period for the GR group. (3) For the purposes of subsection (2), in working out the *GR group's *GR group EBITDA for the period, if a *GR group member for the period of the GR group has an *entity EBITDA for the period of less than zero, disregard that entity EBITDA. (4) To avoid doubt, for the purposes of this section, an entity's, or a *GR group's, net profit (disregarding tax expenses) can be a negative amount. 820‑56 Special deduction for previously FRT disallowed amounts—fixed ratio test (1) An entity can deduct the amount worked out under subsection (2) from its assessable income for the income year if: (a) the entity has not made a choice under subsection 820‑46(3) or (4) in relation to the income year (fixed ratio test applies); and (b) the entity's *fixed ratio earnings limit for the income year exceeds the sum of the entity's *net debt deductions for the income year. Note: The entity's net debt deductions for the income year can be a negative amount. (2) Work out the amount of the deduction as follows: (a) first, work out the amount of the excess mentioned in paragraph (1)(b); (b) next, apply against that excess each of the entity's *FRT disallowed amounts for the previous 15 income years (to the extent that they have not already been applied under this paragraph in respect of any of those previous income years). The amount of the deduction is the total amount applied under paragraph (b). (3) For the purposes of paragraph (2)(b): (a) apply *FRT disallowed amounts in sequence, where a FRT disallowed amount for an earlier income year is applied before a FRT disallowed amount from a later income year; and (b) apply FRT disallowed amounts up to, but not beyond, the excess mentioned in paragraph (1)(b). Note: As a result of paragraph (3)(b), part of a FRT disallowed amount may be applied against the excess mentioned in paragraph (1)(b). 820‑57 Meaning of FRT disallowed amount An entity has a fixed ratio test disallowed amount (or FRT disallowed amount) for an income year equal to: (a) if *debt deductions of the entity for the income year are disallowed under subsection 820‑46(1) and the amount disallowed is worked out in accordance with paragraph 820‑50(1)(a) (fixed ratio test applies)—the amount disallowed; or (b) otherwise—zero. 820‑58 FRT disallowed amount is treated as zero where subsequent choice means fixed ratio test does not apply (1) Subsection (2) applies if: (a) an entity has not made a choice under subsection 820‑46(3) or (4) in relation to an income year; and (b) the entity makes a choice under subsection 820‑46(3) or (4) in relation to a subsequent income year. (2) Despite section 820‑57, for the purpose of applying section 820‑56 in respect of that subsequent income year and later income years, treat the entity as having a *FRT disallowed amount of zero for every income year before that subsequent income year. 820‑59 When FRT disallowed amount is treated as zero for companies and trusts (1) This section applies if an entity is a company or a trust. (2) This section applies for the purposes of applying a *FRT disallowed amount of the entity for an income year (the disallowance year) under paragraph 820‑56(2)(b), in order to work out the amount of a deduction from its assessable income for another income year (the deduction year) under subsection 820‑56(1). (3) Despite section 820‑57, treat the *FRT disallowed amount for the disallowance year as being zero unless: (a) if the entity is a company—subsection (4) applies; or (b) if the entity is a trust—subsection (5) applies. Rules for companies (4) This subsection applies if, assuming that: (a) the *FRT disallowed amount were a *tax loss; and (b) the disallowance year were the *loss year; and (c) the following provisions were disregarded: (i) subsection 165‑115B(3); (ii) subsection 165‑115BA(5); (iii) section 415‑35; Divisions 165, 166 and 167 would not prevent the company from deducting the entire amount of that tax loss in the deduction year. Rules for trusts (5) This subsection applies if, assuming that: (a) the *FRT disallowed amount were a tax loss (within the meaning of Schedule 2F to the Income Tax Assessment Act 1936); and (b) the disallowance year were a loss year (within the meaning of that Schedule); that Schedule would not prevent the entity from deducting the entire amount of that tax loss in the deduction year. 820‑60 Excess tax EBITDA amount Scope (1) This section applies to an entity (the controlling entity) if: (a) the controlling entity is, for a period that is all or part of an income year, one of the following entities: (i) a company that is an *Australian entity; (ii) a unit trust that is a *resident trust for CGT purposes; (iii) a *managed investment trust; (iv) a partnership that is an Australian entity; and (b) the controlling entity is a *general class investor for all or part of the income year; and (c) the controlling entity has not made a choice under subsection 820‑46(3) or (4) in relation to the income year; and (d) one or more other entities (each of which is a controlled entity) satisfy the conditions in subsection (2) of this section in relation to the controlling entity for the income year. (2) An entity (the test entity) satisfies the conditions in this subsection in relation to the controlling entity for an income year if: (a) the controlling entity has a *TC direct control interest of 50% or more in the test entity at any time during the income year; and (b) the test entity is, for a period that is all or part of the income year, one of the following entities: (i) a company that is an *Australian entity; (ii) a unit trust that is a *resident trust for CGT purposes; (iii) a *managed investment trust; (iv) a partnership that is an Australian entity; and (c) the test entity is a *general class investor for all or part of the income year; and (d) the test entity has not made a choice under subsection 820‑46(3) or (4) in relation to the income year. Excess tax EBITDA amount (3) The controlling entity's excess tax EBITDA amount for the income year is the amount worked out using the following method statement. Method statement Step 1. For each controlled entity, work out the amount (if any) by which the *fixed ratio earnings limit of the controlled entity for the income year exceeds the sum of the following: (a) the controlled entity's *net debt deductions for the income year (for the purposes of this paragraph, treat a negative amount of net debt deductions as nil); (b) the total of the controlled entity's *FRT disallowed amounts for the 15 income years ending immediately before the income year (to the extent those amounts have not been applied under section 820‑56). Step 2. For each controlled entity: (a) work out the controlling entity's *TC direct control interest for each day in the income year; and (b) for each day on which the amount was 50% or greater, add the amounts; and (c) divide the result of paragraph (b) by the number of days in the income year during which the controlled entity was in existence. Express the result as a percentage. Step 3. For each controlled entity, multiply the result of step 1 by the percentage worked out under step 2. If the amount worked out under step 1 for a controlled entity is nil, the result for that controlled entity under this step will be nil. Step 4. Add up the amounts worked out under step 3. Step 5. Divide the result of step 4 by 0.3. The result of this step is the excess tax EBITDA amount. Modification of TC direct control interest—companies (4) For the purposes of this section, in working out whether the controlling entity holds a *TC direct control interest in a company, apply subsection 820‑855(2) as if it instead included the modifications of Part X of the Income Tax Assessment Act 1936 set out in the following table. Modifications of provisions in Part X of the Income Tax Assessment Act 1936 Item Provisions Modifications 1 Section 350 (including any other provision in Part X of the Income Tax Assessment Act 1936 that defines a term used in the section) The section applies for the purposes of this section and Subdivision 820‑H rather than only for the purposes of Part X of the Income Tax Assessment Act 1936 2 Subsection 350(1) The reference to "greater or greatest" is taken to be a reference to "lesser or least" 3 Subsection 350(2) The reference to "highest" is taken to be a reference to "lowest" 4 Subsections 350(6) and (7) The subsections do not apply Modification of TC direct control interest—trusts (5) For the purposes of this section, in working out whether the controlling entity holds a *TC direct control interest in a trust, apply subsection 820‑860(2) as if it also included the modifications of Part X of the Income Tax Assessment Act 1936 set out in the following table. Modifications of provisions in Part X of the Income Tax Assessment Act 1936 Item Provisions Modifications 3 Subsection 351(1) The reference to "greater of those percentages" reads "lesser of those percentages" 4 Subsections 351(2) to (4) The subsections do not apply Modification of TC direct control interest—partnerships (6) For the purposes of this section, in working out whether the controlling entity holds a *TC direct control interest in a partnership, apply section 820‑865 as if: (a) the reference to "greatest" were a reference to "least"; and (b) paragraph 820‑865(b) were omitted. Modified meaning of Australian entity (7) For the purposes of this section, in determining whether an entity is an *Australian entity (including for the purposes of determining whether another entity is a *foreign entity) at a particular time: (a) for the purposes of paragraph 336(a) of the Income Tax Assessment Act 1936, treat a partnership as being an Australian entity if, at that time, a *direct participation interest of 50% or more is held in the partnership by one or more of the following: (i) an Australian resident; (ii) an *Australian trust; and (b) disregard section 337 of that Act. 30 Subdivision 820‑B (heading) After "investing", insert "financial". 31 Section 820‑65 Omit "an Australian entity that has certain types of overseas investments and is not an authorised deposit‑taking institution (an ADI)", substitute "an entity that is an outward investing financial entity (non‑ADI) for all of an income year". 32 Section 820‑85 (heading) After "investing", insert "financial". 33 Subsections 820‑85(1) and (2) Repeal the subsections, substitute: Thin capitalisation rule (1A) Subsection (1) applies if: (a) an entity is an *outward investing financial entity (non‑ADI) (see subsection (2)) for all of an income year; and (b) either: (i) the entity has made a choice under subsection (2C) in relation to the income year; or (ii) otherwise—the entity's *adjusted average debt (see subsection (3)) for the income year exceeds its *maximum allowable debt (see section 820‑90) for the income year. Note: This Subdivision does not apply if the total debt deductions of that entity and all its associate entities for that year are $2 million or less, see section 820‑35. (1) This subsection disallows: (a) if paragraph (1A)(b)(i) applies—all or part of the entity's *debt deductions for the income year (to the extent that they are not attributable to an *overseas permanent establishment of the entity); or (b) if paragraph (1A)(b)(ii) applies—all or a part of each debt deduction of the entity for the income year (to the extent that it is not attributable to an overseas permanent establishment of the entity). Note 1: To work out the amount to be disallowed, see section 820‑115. Note 2: For the rules that apply to an entity that is an outward investing financial entity (non‑ADI) for only a part of an income year, see section 820‑120 in conjunction with subsection (2) of this section. Note 3: A consolidated group or MEC group may be an outward investing financial entity (non‑ADI) to which this Subdivision applies: see Subdivisions 820‑FA and 820‑FB. Outward investing financial entity (non‑ADI) (2) The entity is an outward investing financial entity (non‑ADI) for a period that is all or a part of an income year if, and only if, it is an *outward investor (financial) for that period (according to the items of the following table). Outward investing financial entity (non‑ADI) Item If: and: then: 1 the entity (the relevant entity) is one or both of the following throughout a period that is all or a part of an income year: the relevant entity is a *financial entity throughout that period the relevant entity is an outward investing financial entity (non‑ADI) for that period (a) an *Australian controller of at least one *Australian controlled foreign entity (not necessarily the same Australian controlled foreign entity throughout that period); (b) an Australian entity that carries on a *business at or through at least one *overseas permanent establishment (not necessarily the same permanent establishment throughout that period) 2 (a) the entity (the relevant entity) is an *Australian entity throughout a period that is all or a part of an income year; and the relevant entity is a *financial entity throughout that period the relevant entity is an outward investing financial entity (non‑ADI) for that period (b) throughout that period, the relevant entity is an *associate entity of another Australian entity; and (c) that other Australian entity is an *outward investing financial entity (non‑ADI) or an *outward investing entity (ADI) for that period Note: To determine whether an entity is an Australian controller of an Australian controlled foreign entity, see Subdivision 820‑H. (2A) However, the entity is not an outward investing financial entity (non‑ADI) for a period that is all or a part of an income year if it is a *general class investor for that year. (2B) Subsection (2A) does not apply for the purposes of subsection 820‑46(2) (definition of general class investor). (2C) An entity that is an *outward investing financial entity (non‑ADI) for a period that is all or part of an income year may make a choice under this subsection to apply the third party debt test in relation to that income year. (2D) Section 820‑47 applies in relation to a choice under subsection (2C) in the same way that it applies in relation to a choice under subsection 820‑46(3) or (4). 34 Subsection 820‑90(1) (heading) Omit "inward investment vehicle (general) or". 35 Subsection 820‑90(1) Omit "an *inward investment vehicle (general) or". 36 Paragraph 820‑90(1)(b) Repeal the paragraph. 37 Subsection 820‑90(1) (notes 1 and 2) Repeal the notes. 38 Subsection 820‑90(2) (heading) Omit "inward investment vehicle (general) or". 39 Subsection 820‑90(2) Omit "an *inward investment vehicle (general) or". 40 Paragraph 820‑90(2)(b) Repeal the paragraph. 41 Subsection 820‑90(2) (notes 1 and 2) Repeal the notes. 42 Section 820‑95 Repeal the section. 43 Section 820‑100 (heading) Omit "investor (financial)", substitute "investing financial entity (non‑ADI)". 44 Subsection 820‑100(1) Omit "investor (financial)", substitute "investing financial entity (non‑ADI)". 45 Section 820‑105 Repeal the section. 46 Subsection 820‑110(1) Repeal the subsection. 47 Subsection 820‑110(2) (heading) Omit "investor (financial)", substitute "investing financial entity (non‑ADI)". 48 Subsection 820‑110(2) Omit "(2) If the entity is an *outward investor (financial)", substitute "If the entity is an *outward investing financial entity (non‑ADI)". 49 Subsection 820‑111(1) Repeal the subsection. 50 Subsection 820‑111(2) (heading) Omit "investor (financial)", substitute "investing financial entity (non‑ADI)". 51 Subsection 820‑111(2) Omit "(2) If the entity is an *outward investor (financial)", substitute "If the entity is an *outward investing financial entity (non‑ADI)". 52 Section 820‑115 Omit: The amount of *debt deduction disallowed under subsection 820‑85(1) is worked out using the following formula: substitute: (1) If subparagraph 820‑85(1A)(b)(i) applies, the amount (the total disallowed amount) disallowed under subsection 820‑85(1) of the *debt deductions of an entity for an income year is the amount by which those debt deductions (to the extent that they are not attributable to an *overseas permanent establishment of the entity) 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 820‑85(1A)(b)(ii) applies, the amount of a *debt deduction of an entity for an income year disallowed under subsection 820‑85(1) is worked out using the following formula: 53 Paragraph 820‑120(1)(a) After "investing", insert "financial". 54 Subdivision 820‑C (heading) After "investing", insert "financial". 55 Section 820‑180 Omit "a foreign entity or a foreign controlled Australian entity that is not an authorised deposit‑taking institution (an ADI)", substitute "an entity that is an inward investing financial entity (non‑ADI) for all of an income year (but not an outward investing financial entity (non‑ADI) for all or any part of that year)". 56 Section 820‑185 (heading) After "investing", insert "financial". 57 Subsections 820‑185(1) and (2) Repeal the subsections, substitute: Thin capitalisation rule (1A) Subsection (1) applies if: (a) an entity is an *inward investing financial entity (non‑ADI) (see subsection (2)) for all of an income year, but is not also an *outward investing financial entity (non‑ADI) (see section 820‑85) for all or any part of tha