Australia's Board of Taxation has launched a formal statutory review of the country's thin capitalisation reforms, inviting stakeholder submissions as it examines whether the 2024 amendments are effectively limiting excessive debt deductions by multinationals.
The Australian Board of Taxation released a consultation guide marking the beginning of a formal statutory review of recent reforms to the nation’s thin capitalisation rules in March 2026.
This consultation guide outlines an independent statutory review of Australia’s thin capitalisation reforms conducted by the Board of Taxation. The investigation evaluates whether recent legislative changes effectively prevent multinational corporations from using excessive debt deductions to erode the domestic tax base. By seeking public submissions from stakeholders and industry experts, the Board aims to identify technical drafting issues and assess the practical impact of new earnings-based tests.
These reforms were originally introduced through Schedule 2 of the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share—Integrity and Transparency) Act 2024, known as the Amending Act. The independent review is a mandatory requirement under Section 4 of that legislation.
The drivers of reform
The 2024 amendments were designed to strengthen Australia’s domestic tax base by addressing risks associated with the excessive use of debt deductions, which can lead to base erosion or profit shifting. These changes were heavily informed by the OECD’s best practice guidance as part of the broader Base Erosion and Profit Shifting (BEPS) project. The core objective of the policy is to increase tax revenue by limiting debt deductions while simultaneously balancing the need to support genuine commercial activity and minimise compliance burdens for industry.
Shift to earnings-based testing
A fundamental shift in the 2024 reforms was the introduction of new earnings-based tests for certain entities, which replaced the previous asset-based rules. Additionally, the amendments established a new arm’s length debt test in the form of a third-party debt test. These rules became applicable for income years commencing on or after 1 July 2023.
The scope of the statutory review
The Board of Taxation has been tasked with assessing whether these amendments are operating in a manner consistent with their original policy intent. The review, which officially commenced on 1 February 2026, focuses on several critical areas of the legislation’s practical operation.
The review examines whether the amendments effectively curb excessive debt deductions while remaining practical to administer. It looks at technical drafting issues around the third-party debt test and undefined terms, whether the AUD 2 million exemption should function as a net debt deduction threshold, and whether the default tax EBITDA calculation accurately reflects economic activity. It also assesses the compliance cost impact of restructures and the extent to which debt creation schemes have been discouraged.
Stakeholder participation and timetable
The Board is actively seeking feedback from stakeholders who operate within or advise on the thin capitalisation regime. Stakeholders are encouraged to provide practical examples of compliance, details on industry-specific impacts—particularly for capital-intensive sectors—and observations on whether entities have reduced debt financing in response to the rules.
Interested parties can submit their feedback via email to the Board of Taxation Secretariat.
The consultation will follow a fixed timeline, with a guide released in late March 2026, submissions closing on 18 May 2026, and the Board required to deliver its report to the Government by 31 January 2027.
Once the Treasurer receives the final report, it must be tabled in Parliament within 15 sitting days.
