In March 2023, Treasury released exposure draft legislation for public comment containing new thin capitalisation rules proposed to apply from 1 July 2023.
Broadly, thin capitalisation applies to entities part of multinational groups that incur debt deductions (e.g. interest) of more than $2 million for an income year on a group basis.
The new rules seek to implement the Government’s pre-election commitment to replace the current balance sheet-based tests (e.g. the 60% safe-harbour) with an earnings based test seeking to directly limit annual debt deductions to 30% of tax earnings before interest, taxes, depreciation and amortisation (tax EBITDA). The new rules also contain two alternative elective methods.
In April 2023, we made a comprehensive submission in response to the exposure draft legislation and continues to engage with Treasury regarding the design of the legislation to advocate for rules that achieve appropriate outcomes for taxpayers.
You can read our submission below.
You can find out more about our advocacy work on the website here.