On 6 November 2013, the Government announced that it would proceed with reforms to tighten the thin capitalisation rules to prevent erosion of the Australian tax base. These reforms are intended to ensure that multinationals do not allocate a disproportionate amount of debt to their Australian operations.
The proposed amendments in the draft Bill:
- tighten the debt limit settings in the thin capitalisation regime to more closely align with commercial debt levels;
- increase the de minimis threshold from $250,000 to $2 million to minimise compliance costs for small businesses;
- introduce a test for inbound investors to allow gearing of Australian operations up to the level of gearing of the worldwide group; and
- reform the exemption for foreign non-portfolio dividends to address integrity issues.