Guide A: Guide to thin capitalisation

Entities that are not affected by the rules

An asset that is used (or is held for use) wholly or principally for private or domestic purposes is not subject to the thin capitalisation rules - see section 820-32.

For any given income year, the following entities are not affected by the thin capitalisation rules:

an entity that does not incur debt deductions for the income year
an entity whose debt deductions, together with those of any associate entities, are $250,000 or less for the income year - see section 820-35
an Australian resident entity that is neither an inward investing entity nor an outward investor
a foreign entity that has no investment or presence in Australia

an outward investor that is not also foreign controlled and meets the assets threshold test. This is explained further in section 820-37.

Certain special purpose entities are also excluded where all of the following apply:

the entity is established for the purposes of managing some or all of the economic risk associated with assets, liabilities or investments
at least 50% of its assets are funded by debt interests
the entity is an insolvency remote special purpose entity according to the criteria of an internationally recognised rating agency that are applicable to the entity's circumstances. That entity does not have to have been rated by a rating agency.

See section 820-39.

Where several large entities are taken to be a single, notional entity, any one of those entities can still meet this exception provided that all the entities taken together would meet the above conditions.

The entity will only be exempted from the thin capitalisation rules for the period that it meets all of the above conditions.

Sections within 01 Thin capitalisation

Last Modified: Tuesday, 8 May 2012