The Australian 2013 – 2014 federal budget, released on May 14, contains a number of measures aimed at increasing Australian tax revenue. Several of the proposals may be relevant for inbound and outbound investors in Australia. Most notably, the budget proposes to amend the Australian thin capitalization rules by reducing the safe harbor debt amount from 75% to 60% of adjusted Australian assets.
The budget also contains proposals to limit the deductibility of Australian debt raised for foreign investments and to remove the existing participation exemption for dividends received from foreign companies on shares that, for Australian tax purposes, qualify as debt interests under the Australian debt/equity rules.
Most of the proposals discussed below are set to apply for tax years commencing on or after July 1, 2014.