As a consequence of changes to Australia’s thin capitalization rules taxpayers may need to review their thin capitalization position. Now every entity must have to consider whether their liabilities are debt or non-debt and the effect on the calculation of thin capitalization.
Under the Australian rules trade creditors typically fail the debt test when they are settled in less than 100 days in which case they are generally classified as non-debt liabilities. According to a ‘clawback’ rule trade creditors that are on issue for more than 100 days but less than 180 days will be treated like debt (i.e. cost-free debt capital).
