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The thin capitalisation provisions reduce certain expenditure (called ‘debt deductions’) incurred in obtaining and servicing debt where the debt used to finance the Australian operations of a trust exceeds the limits set out in Division 820 of the ITAA 1997. These rules ensure that taxpayers fund their Australian operations with an appropriate amount of equity.
What if the thin capitalisation rules apply?
If the thin capitalisation rules apply, the trust must complete the International dealings schedule 2013, unless the trust was a subsidiary member of a consolidated group for the entire income year.
Where the trust is a member of a consolidated group for the whole income year and the thin capitalisation rules apply, the responsibility for preparing the schedule will rest on the head company of the consolidated group.
Where a return is required because the trust had a period in the income year when it was not a member of a consolidated group (a non-membership period) the trust should complete an International dealings schedule 2013 where the thin capitalisation rules apply to the trust during the non-membership period.
The International dealings schedule is available through the electronic lodgment service (ELS) – or complete and lodge the paper schedule.
What if the thin capitalisation rules are breached?
If the thin capitalisation rules are breached, some of the trust’s debt deductions may be denied. The amount denied for business income is shown in B Expense reconciliation adjustments item 5. If the trust incurred debt deductions for other types of income (for example, rental income, dividend income or foreign income) the amount of deductions shown at the relevant entries must exclude the debt deductions denied.
Last modified: 13 Feb 2019QC 35444