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  • Thin capitalisation

    We focus on Australian and foreign entities that have multinational investments and whose debts exceed 60% of the net value of their Australian investments.

    An entity attracts our attention if it has:

    • failed to lodge the international dealings schedule when required
    • reported a large amount of overseas interest expense on the tax return and has not completed the thin capitalisation section
    • failed the safe harbour debt test, arm’s length debt test or worldwide gearing test (based on the international dealings schedule) and has not declared the debt deduction disallowed
    • relied on the arm’s length debt test 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.

    See also PCG 2020/7 ATO compliance approach to the arm's length debt test.

    Last modified: 09 May 2022QC 69452