The new thin capitalisation and debt deduction creation rules are likely to have a significant impact on the affairs of some taxpayers. The application of these new rules will be a key focus area of our Top 100 and Top 1,000 justified trust compliance and assurance programs when we review years where the new rules apply.Justified trust gives the community confidence that large businesses are paying the right amount of tax.If you're in these programs and subject to a justified trust review, we'll engage with you about thin capitalisation and the debt deduction creation rules to understand the impact of the new rules on your affairs. We'll ask for information that is relevant and tailored to your individual circumstances, having regard for reporting you already provide.Broadly, the information we'll commonly require will include, but not be limited to:calculations and working papers that support reported thin capitalisation informationinformation in relation to how restructuring may have impacted the application of the thin capitalisation and debt deduction creation rulesa copy of the signed and dated approved form for entities that have chosen to apply the third party debt test or group ratio test.By understanding your circumstances, we're building confidence that Australia’s largest taxpayers are complying with the new thin capitalisation rules.These reviews are undertaken by the Tax Avoidance Taskforce. The Taskforce plays a critical role to ensure multinational enterprises, large public and private businesses, and wealthy individuals pay the right amount of tax in Australia.To find out more, visit Thin Capitalisation or Large business justified trust.Keep up to dateWe have tailored communication channels for medium, large and multinational businesses, to keep you up to date with updates and changes you need to know.Read more articles in our online Business bulletins newsroom.Subscribe to our free:fortnightly Business bulletins email newsletterExternal Linkemail notifications about new and updated information on our website – you can choose to receive updates relevant to your situation. Choose the 'Business and organisations' category to ensure your subscription includes notifications for more Business bulletins newsroom articles like this one.
Brief
On January 29, 2025, the Australian Taxation Office (ATO) issued an update regarding Thin capitalisation in focus for justified trust reviews. The new thin capitalisation and debt deduction creation rules are expected to have a significant impact on some taxpayers, with the ATO focusing on these changes during justified trust compliance and assurance programs.
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Purpose:
The new thin capitalisation and debt deduction creation rules are designed to have a significant impact on the affairs of some taxpayers, particularly those participating in the Top 100 and Top 1,000 justified trust compliance and assurance programs. The application of these new rules will be a key focus area for these programs, aiming to ensure large businesses are paying the right amount of tax.
Effects on Industry:
The implementation of these rules is likely to have a substantial impact on the financial affairs of some taxpayers, particularly those who have undergone restructuring or have chosen to apply the third-party debt test or group ratio test. The changes will affect the way these businesses report their thin capitalisation information and may lead to adjustments in their financial structures. As a result, industries such as finance, accounting, and tax advisory services may experience increased demand for consulting and compliance services.
Relevant Stakeholders:
Medium, large, and multinational businesses participating in the Top 100 and Top 1,000 justified trust compliance and assurance programs are directly affected by these changes. These stakeholders will need to provide additional information to support their reported thin capitalisation data and demonstrate how restructuring may have impacted the application of the new rules. Businesses that have chosen to apply the third-party debt test or group ratio test will also be required to submit specific documentation.
Next Steps:
Businesses participating in these programs should prepare to engage with tax authorities, providing relevant information to support their thin capitalisation data and demonstrate compliance with the new rules. This may involve submitting calculations, working papers, and signed approved forms. It is essential for businesses to stay informed about updates and changes related to these rules to ensure they remain compliant.
Any Other Relevant Information:
The Tax Avoidance Taskforce undertakes reviews of multinational enterprises, large public and private businesses, and wealthy individuals to ensure they are paying the right amount of tax in Australia. These reviews aim to build confidence in the tax system and promote compliance with new rules. Businesses can stay up-to-date with updates and changes through tailored communication channels, including email notifications and online newsrooms.
