Australian Taxation Office issues final guidance on thin capitalization arm’s-length debt test and draft guidance on “outbound” interest-free loans

Executive summary

On 12 August 2020, the Australian Taxation Office (ATO) released long-awaited debt deduction related guidance. The guidance is comprised of:

• Final Taxation Ruling TR 2020/4 and Practical Compliance Guideline PCG 2020/7 (replacing the draft PCG 2019/D3) in relation to the application of the arm’s-length debt test for thin capitalization purposes
• Draft Schedule 3 to PCG 2017/4 (PCG 2017/4DC2) in relation to outbound interest-free loans between related parties

As noted, the guida…