This guideline outlines ATO’s practical compliance approach for restructures undertaken in response to the new thin capitalisation and debt deduction creation rules (DDCR).
The Australian Taxation Office (ATO) has published the final Practical Compliance Guideline (PCG) 2025/2, Restructures and the thin capitalisation and debt deduction creation rules – ATO compliance approach on 20 August 2025.
This guidance limits the MNEs’ ability to claim interest payment deductions on their debt. The guidance gives effect to legislation enacted last year aimed at preventing tax avoidance through excessive debt deductions and applies to corporate restructures undertaken on or after 22 June 2023, when the bill was introduced in Parliament.
Under the thin capitalisation rules, certain deductions may be denied, particularly those linked to related-party arrangements, known as debt deduction creation rules.
Final thin capitalisation and DDCR guideline published
We’ve set out our compliance approach to restructures.
We’ve published the final PCG 2025/2 Restructures and the thin capitalisation and debt deduction creation rules – ATO compliance approach.
This guideline sets out our practical compliance approach to restructures carried out in response to the new thin capitalisation rules and debt deduction creation rules (DDCR). We’ve incorporated submissions from stakeholders into the finalised guideline. This includes additional permissive guidance on types of low-risk restructures that taxpayers can enter into in response to the new laws.
We have not included Schedule 3 in the guideline, which was previously released for consultation in December 2024. We’ll update the guideline with schedule 3 when the final taxation ruling TR 2024/D3 Income tax: aspects of the third-party debt test is published in September.
