Published on 01 Oct 12
by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE
The federal government’s Business Tax Working Group is considering possible changes to the thin capitalisation regime as part of its review of the corporate tax regime. Each of the potential changes to the thin capitalisation rules being considered by the working group would result in reduced tax deductibility of interest
and, therefore, higher tax bills for those who exceed thin capitalisation debt limits. However, a growing number of companies have increased their safe harbour debt amount calculations and the tax deductibility of their debt by exercising the option to include the value of certain assets not currently recognised on their accounting balance sheets.
This article examines the proposed changes and concludes that, although they will translate into larger tax bills for those breaching the current limits or the proposed lower limits, planning ahead and valuing intangible assets for thin capitalisation purposes can increase safe harbour debt amounts significantly in many cases.
John-Henry Eversgerd is a Director at McGrath Nicol.