Update: Amendments to thin capitalisation legislation now law
In the most recent update to the thin capitalisation legislation, both houses of Parliament have passed the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share— Integrity and Transparency) Act 2024, which now awaits Royal Assent. The Act introduces the new thin capitalisation interest limitation rules.
The legislation was passed with only minor additional amendments made by the Senate which broadly provide for the grandfathering of the old safe harbour balance sheet method for Australian plantation forestry entities. Additionally, the legislation requires an independent review of the new rules to be commenced no later than 1 February 2026 and completed within 17 months thereof.
The legislation was passed incorporating the Government amendments proposed in November 2023. These were the subject of a report of the Senate Economics Legislation Committee handed down in February 2024. We made our own submission to the Committee, which you can see below.
The new rules come into effect for income years commencing on or after 1 July 2023 with the new debt deduction creation integrity rules commencing 12 months later; applicable to debt deductions incurred for income years commencing on or after 1 July 2024. Broadly, thin capitalisation applies to entities part of multinational groups that incur debt deductions (e.g. interest) of more than $2 million for an income year (on a group basis).
The Government listened to ours and others feedback during the process and proposed several amendments to the legislation which led to the finalised Act. You can read our submission which helped to inform the Government amendments to these latest laws below, and you can find out more about our advocacy work on the website here.
In June 2023, legislation containing new thin capitalisation rules from 1 July 2023 was introduced into Parliament.
Broadly, thin capitalisation applies to entities part of multinational groups that incur debt deductions (e.g. interest) of more than $2 million for an income year (on a group basis).
The new rules broadly seek to directly limit annual debt deductions to 30% of tax earnings before interest, taxes, depreciation and amortisation (tax EBITDA).
Refer to our previous submission in response to Treasury’s August 2022 consultation paper (here), the March 2023 exposure draft legislation (here) and the Senate Economics Committee July 2023 Inquiry into the legislation (here).
The Government has listened to ours and others feedback and proposed several amendments to the legislation. These proposed amendments have been referred back to the Committee for further consideration and report by 5 February 2024.
Pitcher Partners continues to advocate for middle market taxpayers and we made a comprehensive submission in response to this further inquiry.
You can read our submission below.
You can find out more about our advocacy work on the website here.
