On 28 August 2019, the Australian Taxation Office (ATO) published draft Practical Compliance Guideline PCG 2019/D3, which sets out the proposed compliance approach for the use of the arm’s-length debt test (ALDT) for the purposes of Australia’s thin capitalization regime.
The ATO concentrate on providing detailed expectations around the application of the ALDT arises from more taxpayers relying on the ALDT since the safe harbor debt amount ratio was reduced to 60%.
Even if the draft PCG is proposed to apply to ALDT determinations from 1 July 2019, given that the ATO considers that the PCG does not reflect new law, but is merely a clarification of the existing thin capitalization legislation.
