New thin capitalisation rules contained in the Treasury Law Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Act 2024External Link apply to income years commencing on or after 1 July 2023, except for the debt deduction creation rules which apply for income years starting on or after 1 July 2024.
The thin capitalisation rules apply to most multinational businesses operating in Australia. This includes privately owned entities that are foreign controlled or have overseas entities, with more than $2 million in debt deductions, on an associate inclusive basis. The old thin capitalisation rules continue to apply to Australian plantation forestry entities.
For more information on the new thin capitalisation rules, see Thin capitalisation.
See how the debt deduction creation rules apply for private groups at Debt deduction creation rules and Division 7A.
An entity attracts our attention if it has:
- failed to lodge the international dealings schedule (IDS) when required
- reported a large amount of overseas interest expense on the tax return and hasn't completed the thin capitalisation section of the IDS
- applied the $2 million threshold without due consideration for the total quantum of debt deductions including those of associate entities for that year
- overlooked or incorrectly applied the thin capitalisation rules
- failed the relevant thin capitalisation test and hasn't declared the debt deduction disallowed
- relied on the arm’s length debt test for 2023 or earlier income years without due consideration of the Commissioner’s view in TR 2020/4 Income Tax: Thin Capitalisation – the arm's length debt test
- determined the value of its assets and liabilities inappropriately for thin capitalisation purposes
- revalued assets for thin capitalisation purposes.
For information on the arm's length debt test prior to its removal, see PCG 2020/7 ATO compliance approach to the arm's length debt test.
To access the latest information on the IDS form, see What's new for the international dealings schedule and Instructions to complete the international dealings schedule.