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.

For information on the arm's length debt test, see PCG 2020/7 ATO compliance approach to the arm's length debt test.