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Australia Announces New Thin Cap Measures

Australia Announces New Thin Cap Measures

Australia tabled its 2018 budget on May 8, 2018.


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This budget proposes some international tax measures, including new thin capitalization rules that could limit certain companies from claiming deductions for interest on debt. The budget also proposes to broaden the scope of Australia's multinational integrity measures, and as a result they may apply to previously excluded entities. Australia also uses this budget to confirm its commitment to tightening stapled structure concessions for foreign investors.

While this 2018 budget reaffirms Australia's plan to progressively reduce its corporate tax rate in the coming years, it does not include any new policies in this area.

Highlights of select international measures include the following:

Tighter thin capitalization rules - The budget introduces measures to remove existing rules that have allowed taxpayers to favourably adjust their debt-to-equity safe harbour ratios through asset revaluations, among other items. These measures will apply to income years beginning on or after July 1, 2019.

Expanded scope for Australia's multinational integrity measures - The budget includes a measure to broaden the "significant global entity" definition, to include members of large multinational groups headed by private companies, trusts, partnerships and investment entities. This definition determines whether an entity is under the scope of several of Australia's multinational integrity measures, such as the Multinational Anti-Avoidance Law and the Diverted Profits Tax, and could also mean increased administrative penalties. Finally, it may also mean an increase in the application of country-by-country requirements, and could stipulate that certain entities must now prepare general purpose financial statements where no previous legal obligation existed. The broadened definition will apply for income years beginning on or after July 1, 2018.

Changes for investment trusts - The budget announces an increase to the number of countries whose residents are eligible for reduced Australian withholding tax (at a reduced rate of 15% instead of 30%) on certain Managed Investment Trust distributions, effective January 1, 2019. The budget also announces changes to prevent the capital gains tax discount at the trust level for Managed Investment Trusts and Attribution Managed Investment Trusts.

Confirmation of tighter stapled-structure concessions for foreign investors - The budget confirms Australia's previously announced "stapled-structure integrity measures" to limit withholding tax exemptions for foreign pension funds, among other changes.

For more information, contact your KPMG adviser.

Information is current to May 15, 2018. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's National Tax Centre at 416.777.8500.

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