Show download pdf controls
  • Valuation of assets for the purposes of the Thin Capitalisation regime

    As part of the 2018-19 Budget, the Government announced on 8 May 2018 that Australia’s thin capitalisation rules (contained in Division 820 of the Income Tax Assessment Act 1997) would be tightened by requiring entities to align the value of their assets for thin capitalisation purposes with the value included in their financial statements.

    This proposal is not yet law.

    Administrative treatment

    The ATO will accept tax returns as lodged according to current law during the period up until the proposed law change is passed by Parliament. Assessments for the relevantly impacted income years will not be reviewed until the outcome of the proposed law change is known.

    Once the new law is enacted, if you have lodged according to current law you will need to review your thin capitalisation positions for the impacted years.

    If your tax return was not lodged in accordance with the law change you should seek an amendment. If an increase in liability results and you request an amendment within three months of Royal Assent:

    (a) no tax shortfall penalties will be applied; and

    (b) any shortfall interest accrued will be remitted to base interest rate.

    If you require further time to lodge an amendment you should discuss your circumstances with us.

    For the avoidance of doubt, no tax shortfall penalty or interest will be remitted to the extent a tax shortfall arises as a result of failing to satisfy all the requirements of the law which prevailed prior to the enactment of the new law (for example, failure to comply with the requirements for a compliant asset valuation under section 820-680, or the record keeping requirements in Subdivision 820-L, of the Income Tax Assessment Act 1997).

    If you instead chose to lodge in accordance with the proposed law change and your lodged position is subsequently determined to be wholly consistent with the legislated change, you do not need to do anything further. However, to the extent your lodged position differs from that required by the new law once enacted, you should seek an amendment and the above administrative treatment will equally apply.

    Legislation and supporting material

      Last modified: 26 Jun 2018QC 56110