TaxRambling.com

Thin capitalisation is one of those thing many of us learned to pass a tax exam, and have never thought of again.

In summary (a very, very quick summary) if you decide to fund your Australian operation with lots of debt rather than equity, you might have to pay heaps of interest but the thin capitalisation rules will deny tax deductions for the excessive interest.

Going forward that is about all most of us will need to know…

The Government has just released some draft legislation changing the thin capitalisation rules. The most important change is that “To minimise compliance costs for small businesses, the de minimis threshold for the application of the thin capitalisation limits will be increased from $250,000 to $2 million of debt deductions.”

This means that before you even need to consider thin capitalisation you need to have interest expenses for a year over $2 million. And thats the interest, not the loan. Unless the entity has loans upwards of $20 million to them, they wont have $2 million in interest and you can ignore thin cap…

Yeah… One less thing to worry about for SME advisors.