• Service: Tax, Corporate Tax
  • Industry: Financial Services
  • Type: Regulatory update
  • Date: 25/09/2013

Tax Insights

KPMG's analysis of tax issues and developments.

Brendon Lamers

Brendon Lamers
Partner, Tax Infrastructure & Property

+61 2 9335 7021

Time to review your debt positions 

by Brendon Lamers, Financial Services Specialist

Coming out of a Treasury Paper titled Addressing profit shifting through the artificial loading of debt in Australia two key issues have arisen for taxpayers:


  • the safe harbour for debt has reduced from 75 percent of gross assets, to 60 percent of gross assets effective 1 July 2014
  • more taxpayers will be required to rely upon the 'arm’s length' debt test, which is currently being reviewed by the Board of Taxation (BoT)

Given the increasing reliance on the arm’s length debt test, taxpayers need to start examining their debt arrangements now to ensure compliance with thin capitalisation requirements.


I draw the following observations from my involvement in submissions on behalf of the peak bodies Infrastructure Partners Australia and the Property Council of Australia.


It is essential to provide certainty for both taxpayers and the Tax Office by simplifying the method for ascertaining whether the arm’s length test is passed. To this end, the arm’s length test:


  • should be satisfied where the lender’s are not associates
  • should not be an annual test, but apply only at the time debt is issued or its terms materially change
  • could introduce certain ratios or data sets to provide industry specific guidance that this test is satisfied. This may not reduce the overall compliance burden as the appropriate ratios for infrastructure assets vastly differ to those for a distribution business.


Essentially, it must be remembered that the safe harbour test is just that, and that the real test is the arm’s length test. Any move to alter this would undermine the thin capitalisation regime in Australia. Taxpayers need to get involved in the BoT review in order to protect their position.


Share this

Share this


Our Tax team assists with corporate tax, transfer pricing, indirect tax, global mobility, R&D incentives, superannuation and more.

Financial Services

Our Financial Services practice can help financial institutions make better decisions about performance, growth, governance and prudential matters.