Two key issues have emerged for taxpayers, with the arrival of an Australian Treasury Paper, addressing profit shifting through the artificial loading of debt in Australia.
Effective from 1 July 2014, the safe harbour for debt has been diminished from 75% of gross assets to 60% of gross assets and more taxpayers will be obliged to depend upon the “arm’s length” debt test, which is presently being explored by the Board of Taxation.
In accordance with the increasing reliance on the arm’s length-debt test and the reduction of the safe harbour percentage, taxpayers need to start examining their debt arrangements now to be in compliance with thin capitalization requirements.
