As previously reported, the government has announced its
position in relation to a range of international tax measures
that had been announced by the previous government but not yet
This includes the proposal to tighten the thin
capitalisation regime with effect from income years commencing
on or after July 1 2014, and includes changes to:
- Reduce the safe harbour debt limit for general entities
from 3:1 to 1.5:1 on a debt to equity basis;
- Reduce the safe harbour debt limit for non-bank financial
entities from 20:1 to 15:1 on a debt to equity basis;
- Increase the safe harbour minimum capital for banks from
4% to 6% of the risk weighted assets of their Australian
- Reduce the worldwide gearing ratio from 120% to 100% and
making it available to inbound investors; and
- Increase the de minimis threshold from $250,000 to $2
million of debt deductions.
The alternative arm's-length debt test will remain
available, subject to review.
It is unlikely that there will be any transitional
provisions or grandfathering for existing funding
Taxpayers should note that capitalising debt arrangements to
fall within the safe harbour debt limit may have other tax
implications. For example, foreign exchange realisation,
changes in the rate of tax loss utilisation for tax
consolidated groups and commercial debt forgiveness.
In addition to tightening the thin capitalisation regime,
the government has made the following announcements:
- The government will not abolish the provision that
enables Australian companies to claim a deduction for
interest incurred in earning exempt non-portfolio dividends.
Instead, it will introduce a new targeted anti-avoidance
- Changes will be made to the non-portfolio dividend
exemption so that it only applies to instruments that are
equity in substance.
- The non-resident capital gains tax (CGT) provisions will
be amended which may result in certain shares held by
non-residents now falling within the Australian tax net
(applicable to CGT events occurring after May 14 2013).
- A non-final non-resident withholding tax regime will be
introduced (from July 1 2016) under which purchasers will be
required to withhold and remit to the Australian Taxation
Office 10% of the purchase price of certain taxable
Australian property acquired from non-resident vendors.
- Disappointingly, the government will not proceed with the
modernisation of the controlled foreign company
Tom Seymour (firstname.lastname@example.org)
Tel: +61 (7) 3257 8623