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Thin capitalisation

Last updated 17 February 2020

The thin capitalisation provisions apply to entities (including individuals) to reduce certain deductions (called 'debt deductions') for costs incurred in obtaining and servicing debt finance where the debt applicable to Australian operations exceeds the limits set out in Division 820 of ITAA 1997.

Do the thin capitalisation provisions apply to you?

The thin capitalisation rules will apply to you if:

  • you are an Australian resident and you or any of your associate entities is an Australian controller of a foreign entity or carry on business overseas at or through a permanent establishment, or
  • you are a foreign resident and you carry on business in Australia at or through a permanent establishment or otherwise have Australian income-producing assets.

The thin capitalisation rules will not apply to you if:

  • your debt deductions (combined with the debt deductions of your associate entities) do not exceed $250,000 in the income year, or
  • you are an Australian resident and the combined value of your and your associates' Australian assets is not less than 90% of the value of your and your associates' total assets.

What if the thin capitalisation rules apply to you?

If the thin capitalisation rules apply to you, you must complete the Thin capitalisation schedule 2004. The amount of any debt deductions you can claim may be reduced by these rules. For more information, see the publication Guide to thin capitalisation, which is available on the Tax Office website at www.ato.gov.au

Complete the thin capitalisation schedule and post it to:

Australian Taxation Office
PO Box 1365
ALBURY  NSW  2640

QC27547