Australia’s Board of Taxation will review the 2024 thin capitalisation law changes, assessing their effectiveness, practical impact, and alignment with policy intent, while seeking public input and providing recommendations to ensure tax integrity without undue complexity.

RF Report

Australia’s government has asked the Board of Taxation to independently review the recent changes to Australia’s thin capitalisation rules.  These changes were introduced in Schedule 2 of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024.

In conducting the review, the Board will assess whether the amendments are operating in a manner consistent with the policy intent, which was to strengthen Australia’s thin capitalisation regime to address risks arising from the use of excessive debt deductions, informed by the OECD’s best practice guidance.

In considering the operation of the amendments, the Board is requested to consider:

  • The overall performance of the amendments in strengthening Australia’s thin capitalisation regime to address risks arising from the use of excessive debt deductions.
  • Any minor and technical drafting changes necessary for the practical administration of the laws, with particular focus on the third-party debt test provisions and related undefined legislative terms.
  • If the AUD 2 million exemption threshold should operate as a net debt deduction concept.
  • Whether the default tax EBITDA calculation operates to appropriately reflect an entity’s economic activity in the income year and across multiple income years, as intended.
  • The practical impact on the cost of complying with the debt deduction creation rules after restructures, including whether the rules have effectively discouraged debt creation schemes.

The Board will explain why any recommendation it makes is important and how it will preserve the practical effect of the 2024 amendments. It will also consider the balance between complexity and tax integrity.

The Board will conduct a public consultation to gather input for its final report and will coordinate closely with the Treasury and the Australian Taxation Office.

The review began yesterday, 1 February 2026, with the final report due to the Government within 12 months.