Australia/New Zealand

June 2026 Australia - Corporate Thin Capitalisation guide

This document outlines the final content changes included in this release detailing the changes made to the Thin capitalisation workpapers in the 2026 June release.
For any questions or further assistance regarding the release notes, contact Support ANZ:
These release notes should be read in their entirety, as they specify actions required during the upgrade process.

Upgrade and roll forward details

A30 - Thin capitalisation – general
A31 - Excess tax EBITDA
A32 - FRT Disallowed Amounts
Upgrade and roll forward implications when moving to the new 2026 Thin Capitalisation workpapers
  • A31
     and
    A32
    are linked to
    A30
    , so all add and remove together as a set.
  • If currently inserted
    A30
     and
    A31
     workpapers will roll forward, the new
    A32
     will now be inserted.
  • No existing data will roll forward – any carry forward disallowed amounts from
    A30
     will need to be populated in the new
    A32
     workpaper.
  • After upgrade if
    A30
     and
    A31
     are in existing calculation they will upgrade and the new workpaper
    A32
     will also be inserted.
  • Any existing carry forward disallowed amounts from
    A30
     will need to be populated in the new
    A32
     workpaper.
  • A30
     - Calculated amounts for debt deductions and debt income have been updated to directly reflect the tax-deductible amounts. These amounts will now link directly to the respective workpaper.
  • A – Statement of taxable income – a new section for the Thin Cap adjustments has been added. This is to “isolate” it from updated Thin Cap calculations. Previous add back amounts will be cleared from
    A15
     and the
    A30
    /
    A32
     workpapers can now be used to determine this amount.
  • IDS Form impact – Section D – thin capitalisation:
  • No Thin Cap workpapers inserted in pre-upgrade calculation:
    • When upgrading the IDS to the latest version only those items noted in the release notes will change, this will include cells that now have formulas.
    • If Thin Cap workpapers are then inserted in the upgraded calculation, certain labels within Section D now link to
      A30
      /
      A32
      . If data was previously in these cells the cell will need to be “reset to template cell” to activate the new formulas. Any previous amounts entered will be removed and updated with the new amounts.
  • Thin Cap workpapers inserted in pre-upgrade calculation:
    • Any amounts entered in Section D will remain.
    • The new workpaper
      A32
       will be loaded.
    • To take advantage of the updated linking from the latest Thin Cap workpapers some of these cells may need to be “reset to system cells”.
    • To check what cells may need resetting due to the updates form
      A30
      /
      A32
       review Table A. Other cells may require resetting as well due to other updates, these are part of the general release notes for the IDS.
Upgrade Requirements
  • All templates must be upgraded to the latest available versions.
  • Ensure that both AU Company Tax and AU Consolidated Company Tax templates are aligned with the same version, according to the official release schedule.
Important Considerations
  • Using templates on different versions may result in errors and unreliable data flow.
Follow the preceding guidance to maintain consistency and accuracy across all tax processes.

2026 Guide to the updated Thin Capitalisation support workpapers

Overview

This document provides release notes and completion guidance for the Australian Thin Capitalisation workpapers supporting the International Dealings Schedule (IDS) - Section D. These workpapers support the ATO Form requirements for the 2026 income year and assist with the Fixed Ratio Test, Group Ratio Test, and Third Party Debt Test calculations under Division 820 of the ITAA 1997.
Each section has provision for manual rows and other adjustments.

Debt deduction creation rules (DDCR) and Transfer pricing rules

The DDCR and Transfer Pricing rules are a pre-cursor to calculating any Thin Cap. amounts. These areas should be considered before undertaking the Thin Cap calculation. For Thin Cap. purposes it is assumed these adjustments have already been made to the taxable income.
The order for ATO purposes is very specific so please review these rules to ensure the correct calculation and disclosures.

A30: Thin Capitalisation - General (Tax EBITDA Calculation)

Purpose
The primary workpaper for calculating Tax EBITDA and applying the thin capitalisation tests under s820-52.
Completion Process
Step 1: Entity Configuration
  1. Select Entity Type
     - Choose from dropdown:
    • Controlled Entity
    • Controlling Entity
  2. Select Test Type
     - Choose from dropdown (default is Fixed ratio test):
    • Fixed ratio test
    • Group ratio test
    • Third party debt test
Step 2: Calculate Modified Taxable Income (Label 35a(A))
  1. Taxable Income
  2. Reversal of Thin Cap Adjustments
  3. Less Disregarded Amounts
  4. Less Prior Year Tax Losses
  5. Modified Taxable Income Result
Fixed ratio test
Step 3: Calculate Net Debt Deductions (Label 35a(B))
Interest and debt deductions are to be calculated in accordance with the ATO rules and legislative steps for calculating “net debt deductions”. Existing tax amounts within the calculation are utilized where possible.
  1. Add: Entity's Debt Deductions
  2. Less: Interest Income
  3. Total Net Debt Deduction (35a(B))
Step 4: Calculate Modified Depreciation & Forestry Costs (Label 35a(C))
Existing tax amounts within the calculation are utilized where possible.
Step 5: Excess Tax EBITDA (Label 35a(D)) -
For Controlling Entities only
Step 6: Calculate Tax EBITDA (Label 35a(E))
note
Cannot be negative.
Step 7: Fixed Ratio Test
  1. Fixed Ratio Earnings Limit
    (Label 35a(F))
  2. Current Period FRT Disallowed Amount (35C/7W):
    • This amount flows to A32 for carry-forward tracking
  3. Adjusted Average Debt – Manually calculate and insert here to feed into the IDS Form
For Excess Tax EBITDA purposes Only
Step 8: Controlled Entity Details (35a(H))
Complete for up to 3 controlled entities with highest excess tax EBITDA:
  • Entity name (H1a, H2a, H3a)
  • Step 1 amount per s820-60(3) (H1b, H2b, H3b)
  • Step 3 amount ÷ 0.3 (H1c, H2c, H3c)
Group ratio test
Step 9: Group Ratio Test (Section 35b) (If selected)
  1. Group EBITDA
  2. Group details – Net profit before tax (35b(E))
  3. Group Ratio - Group Net Third Party Interest Expense (35b(F))
  4. Group Ratio (35b(I))
  5. GR Earnings Limit (35b(J))
  6. Complete Group Member disclosures (K1a-K3d) for EBITDA, interest expense, and jurisdiction codes
Step 10: Third Party Debt Test (Section 35c) (If selected)
  1. External Third Party Debt deductions
  2. Third party earnings limit

A31: Excess Tax EBITDA (Controlled Entities Only)

Purpose
Calculate excess tax EBITDA amount for
Controlled Entities ONLY
 under s820-60. This supports the transfer of excess capacity from controlled entities to their controlling entity.
Prerequisite Check
note
If you are a Controlling Entity, do not complete this workpaper. The workpaper will display an error message if incorrectly selected.
Completion Process:
Step 1: Calculate Difference (Fixed Ratio Limit – Debt Deductions – Carry Forward)
Step 2: Calculate Weighted Control Interest
Step 3-4: Apply Weighting
Step 5: Calculate Excess Tax EBITDA
Linking Requirements
  • Step 5 result links to
    A30
     for Controlling Entity calculations
  • FRT disallowed amounts source from
    A32
     carry-forward schedule
Legislative References
  • s820-60: Excess tax EBITDA amount rules
  • s820-46(3-4): Test choice provisions

AU Company Tax A32: Thin Capitalisation - Debt Deduction Carry Forward Amounts

Purpose
Track the 15-year carry forward of Fixed Ratio Test (FRT) disallowed amounts under s820-56 and s820-59. This workpaper manages the opening balances, current year adjustments, and closing balances for FRT disallowed amounts.
Completion Process
Step 1: Prior Year Balances Section
  • Amount Brought Forward (bf)
    : Manual entry for Year 0 – should only be completed by the Head Entity/Group of a Tax consolidated group.
Step 2: Current Period Activity
Step 3: Calculate Totals
Step 4: Prior Year FRT Utilisation: Answer IDS question 35e(A): "Do you have a prior-year FRT disallowed amount?" This will need to be answered on the Form.
  • Code selection:
    • 1-Zero
    • 2-Zero due to test choice
    • 3-COT fail
  • Calculation information:
    • Maximum prior period FRT amount claimable: Based on excess earnings capacity
    • Calculated maximum prior period FRT amount claimable – calculated to assist with current period claim.
Step 5: Statement of Taxable Income Impact – to avoid any circular calculation for Thin cap deduction, there is a new section in the STI containing the add back and subtraction amounts:
  • Add - Thin capitalisation - FRT debt deduction disallowed
  • Less - Prior year FRT disallowed amounts claimed
Step 6: Balance Sheet / Tax Effect Accounting
In accordance with applicable Accounting Standards some processes and treatment may not be applicable for Tax consolidated groups. Confirmation of treatment of temporary differences for Thin Capitalisation - debt deduction carry forward amounts should be obtained prior to recognition.
  • Closing balance for TEA (Balance Sheet other non-financial items)
    • Thin Capitalisation - debt deduction carry forward amounts
    • Opening temp diff per WP
  • Generates TEA line items
Tax Effect Accounting
 - for group purposes some of this may not be relevant.
  • Tax Groups only – member closing balance amounts in
    A32
     will need to be transferred out to the head entity using the “FRT amounts transferred in from joining entities”. The Head entity will then require the transfer in of these amounts as applicable.
    Any amounts that require offsetting for Tax group consolidation purposes will be adjusted at Group level.
  • T1 – Current tax
    • Add – Thin capitalisation - Fixed Ratio Test debt deduction disallowed
    • Less - Thin Capitalisation - Prior year FRT disallowed amounts claimed in the current period
    • Temp diff category: "Thin Capitalisation - debt deduction carry forward amounts"
  • Temporary difference dataflow to T3, T4, T5, T8

Table A – IDS Disclosures

Workpaper A30 - Thin Capitalisation - General
IDS 2025 Label
Linked
Modified taxable or net income/(tax loss)
35a(A)
Yes
Net debt deductions
35a(B)
Yes
Modified depreciation and forestry costs
35a(C)
Yes
Excess tax EBITDA amount (if controlling entity)
35a(D)
Yes
Tax EBITDA
35a(E)
Calculated
Fixed ratio earnings limit (30%)
35a(F)
Calculated
Total disregarded amounts
35a(G)
Yes
Debt deductions
35A
Yes
Debt deductions on debt from related non residents
35B
Yes
Amount of debt deduction disallowed
35C
Yes
Adjusted average debt
35D
Yes
Interest income (per 820 50(3)(b))
35E
Yes
Related non resident interest income
35F
Yes
Controlled Entity Name (1–3)
H1a / H2a / H3a
Yes
Step 1 amount (FR limit – net debt deductions – prior FRT CF)
H1b / H2b / H3b
Yes
Step 3 amount ÷ 0.3
H1c / H2c / H3c
Yes
Applied group ratio test?
35b(A)
No
Number of GR group members
35b(B)
Yes
Members with negative EBITDA
35b(C)
Yes
GR group net third party interest expense
35b(D)
Yes
GR group net profit
35b(E)
Yes
Adjusted net third party interest expense
35b(F)
Yes
Depreciation and amortisation
35b(G)
Yes
GR group EBITDA
35b(H)
Calculated
Group ratio
35b(I)
Yes
Group ratio earnings limit
35b(J)
Calculated
Controlled GR members (K1–K3)
35b(K1a–K3d)
Yes (except code)
Workpaper A32 - FRT disallowed amounts
IDS Label
Linked
"Do you have a prior year FRT disallowed amount?"
35e(A)
No
FRT disallowed code (1/2/3)
35e(B)
No
Amount applied in current year
35e(C)
Yes
FRT amount carried forward
35e(D)
Yes
Were you the head company?
35e(E)
No
Were amounts transferred in under 820 590?
35e(F)
No
Amount calculated under 705 112(2) (ACA Step 6A)
35e(G)
Yes
Important Rules – Check and confirm as applicable
  1. 15-Year Limit
    : FRT disallowed amounts can only be carried forward for 15 income years
  2. Sequential Application
    : Earlier year amounts must be applied before later years
  3. Test Continuity
    : Must continue using Fixed Ratio Test to access carry-forward amounts
  4. Modified COT
    : Companies must pass modified continuity of ownership test
  5. Consolidation
    : FRT amounts transfer to head company at joining time (s820-62)

This article applies to:

  • Product: ONESOURCE Trusts