If you breach the rules

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 also

• section 110-54 of the ITAA 1997.