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Work out if the thin capitalisation rules apply

Answer these questions to work out if the thin capitalisation rules apply to an entity.

Last updated 1 September 2020

Work out if the thin capitalisation rules apply to:

Australian entities

  1. Do any of the following apply?
    1. The entity has an overseas permanent establishment
    2. The entity is an Australian controller of a foreign entity
    3. The entity is an associate of an Australian controller of a foreign entity
    4. The entity is foreign controlled
      • Yes – see question 2
      • No – the thin capitalisation rules do not apply 
       
     
  2. Does the entity have any debt deductions against the assessable income in the income year?
    • Yes – see question 3
    • No – the thin capitalisation rules do not apply
     
  3. Do the combined debt deductions of the entity and its associate entities exceed $2 million in the income year?
    • Yes – see question 4
    • No – the thin capitalisation rules do not apply
     
  4. Is the entity foreign controlled?
    • Yes – see question 6
    • No – see question 5
     
  5. Is the combined value of the entity's average Australian assets of its associates less than 90% of the entity's average total assets and the average total assets of is associates in the income year?
    • Yes – see question 6
    • No – the thin capitalisation rules do not apply
     
  6. Is the entity a special purpose entity that meets the tests in section 820-39 of the ITAA 1997?
    • Yes – the thin capitalisation rules do not apply
    • No – the thin capitalisation rules apply
     

Foreign entities

  1. Does the entity have any assets in Australia that are capable of producing Australian assessable income?
    • Yes – see question 2
    • No – the thin capitalisation rules do not apply
     
  2. Does the entity have any debt deductions against the assessable income in the income year?
    • Yes – see question 3
    • No – the thin capitalisation rules do not apply
     
  3. Do the combined debt deductions of the entity and its associate entities exceed $2 million in the income year?
    • Yes – see question 4
    • No – the thin capitalisation rules do not apply
     
  4. Is the entity a special purpose entity that meets the tests in section 820-39 of the ITAA 1997?
    • Yes – the thin capitalisation rules do not apply
    • No – the thin capitalisation rules apply
     

QC48124