Insight
ATO final taxation ruling – TR 2025/2: Third Party Debt Test (TPDT)
Australia’s new thin capitalisation rules significantly impact businesses with foreign ownership or offshore operations. If your business has debt deductions (such as interest deductions and borrowing costs) of more than A$2m, tax deductions could be denied under the primary ‘earnings tests’ (particularly if your EBITDA is low or negative due to early-stage losses, especially common in sectors like infrastructure and technology).
To manage the above risk, the legislation offers an alternative test: the Third Party Debt Test (TPDT).