The Government has announced changes to the thin capitalisation rules which will further limit debt deductions which may be made by inward and outward investing entities. The new rules will be:

  • for general entities, the limit will be reduced from 3:1 to 1.5:1 on a debt to equity basis
  • for non-bank financial entities, the limit will be reduced from 20:1 to 15:1 on a debt to equity basis
  • for banks, the capital limit will be increased from 4% to 6% of their risk weighted assets of the Australian operations
  • for outbound investors, the worldwide gearing ratio will be reduced from 120% to 100% (with an equivalent change to the worldwide capital ratio for banks).