• Service: Tax, Advisory
  • Type: Regulatory update
  • Date: 16/09/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Massimo Gozzo

Massimo Gozzo
Manager, Advisory

+61 2 9455 9212

Thin capitalisation and tangible assets revaluation 

by Massimo Gozzo, Valuations Specialist

In May 2013, the Labor Government announced a material reduction in Australian’s thin capitalisation thresholds. If these changes are enacted, they will affect the amount of interest expense that is tax deductible in Australia for companies with foreign ownership. The changes are proposed to apply to financial years commencing on or after 1 July 2014.

Clients may face challenges with a decline in the thin cap threshold from 75 percent to 60 percent of adjusted Australian assets (from 3:1 to 1.5:1 debt to equity) but we may be able to assist in partially offsetting the negative impact by reassessing and revaluing their tangible assets.


The potential for an uplift from a revaluation is likely to be higher if the business:


  • conducts capital intensive activity
  • is an established business


The revaluation opportunity exists due to:


  • the Australian Taxation Office (ATO) lives suggested in the taxation ruling for 'Income tax: effective life of depreciating assets' not appropriately reflecting the technical/economic lives of the assets
  • regular maintenance and upgrades extending the life of the asset beyond its expected life when first installed


There are different factors influencing an asset’s life, with its ultimate length dependant on:


  • mechanical efficiency
  • technological potential
  • commercial adequacy of the product


Weighting these factors will result in a more realistic and reliable representation of the assets’ lives than the typical tax classes applying adequate technical/economic lives may create 'value' for your business clients.


For more information please speak to a Tangible Asset valuer within KPMG’s valuations team.


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