Guide A: Guide to thin capitalisation

What happens to the disallowed debt deductions?

If an entity breaches the thin capitalisation rules in an income year, it cannot deduct a proportion of its debt deductions in that year. Also, the disallowed amounts cannot be carried forward to future income years.

Disallowing a deduction from an amount does not affect whether the recipient is subject to Australian tax on that amount, including withholding tax. Also, disallowed debt deductions are not included as part of the CGT cost base when calculating the net gain made in respect of a CGT event. See section 110-54 for more information.

Sections within 01 Thin capitalisation

• Thinly capitalised entities
• From when do the thin capitalisation rules apply?
• Entities that are affected by the rules
• Entities that are not affected by the rules
• The assets threshold test
• What happens to the disallowed debt deductions?
• Thin capitalisation and consolidations
• What are average values?