Entity Setup

Tax Planning Strategies for Businesses Facing the New Thin Capitalisation & Minimum Tax Rules

The new thin capitalisation, Global Minimum Tax, and Pillar Two rules reshape how businesses optimise debt, profits, and foreign-connected operations—planning now is essential.

By NomadicTax Research Team • 6-8 min read • April 2, 2026

## What’s Changing Australia’s tax integrity package introduces **thin capitalisation reforms** and the **Global and Domestic Minimum Tax rules** (Pillar Two), aiming to address base erosion and profit shifting (BEPS). ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) businesses can no longer rely on older asset-based tests alone—**interest deductions will be limited to 30% of EBITDA**, subject to eligible tests. Passive structures and intangible-related deductions will receive heavy scrutiny. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) ## Key Impacts - **MNEs** must file **GloBE Information Returns (GIRs)** and comply with income inclusion and domestic minimum taxes. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) - Early compliance phases may have relief from penalties if entities take **reasonable efforts**. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) - Structures involving high debt financing, especially for intangibles or royalty-like payments across borders, are under risk. Split entities, captive finance structures, or layered holding companies are all relevant. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) ## Planning Opportunities - **Evaluate debt vs equity**: Shift from debt financing that yields high interest deductions to more equity-based funding or manage interest rates and amounts to stay under the 30% EBITDA cap. - **Restructure intangible payments**: Review where royalties, licenses, or IP charges flow. Consider sourcing them into higher-tax jurisdictions or ensuring they conform to arm’s length standards. - **Use safe harbours wisely**: Pillar Two transitional country-by-country reporting (TCbCR) safe harbours are available before certain periods; knowing your eligibility buys time. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) - **Align accounting with tax compliance**: Financial statement treatment for intercompany and joint venture transactions may impact the GloBE calculations. Choice of consolidated accounting vs stand alone matters under section 3-200 and 6-70 elections. ([ato.gov.au](https://www.ato.gov.au/about-ato/consultation/in-detail/special-purpose-working-groups-key-messages/pillar-two-global-and-domestic-minimum-tax-working-group/pillar-two-global-and-domestic-minimum-tax-working-group-key-messages-3-april-2025?utm_source=openai)) ## Examples - **Example A**: A multinational with Australian operations, previously financed via debt from overseas. Under new rules, interest deductions now limited. Solution: convert part of debt into equity or shorten the repayment term to reduce debt-related deductions. - **Example B**: A tech group charges royalties from Australian users to an offshore IP owner. With Pillar Two, these could be denied deductions if not holding up to OECD integrity rules. Negotiating new licensing, ensuring value, and documenting arm’s-length terms become necessary. ## Compliance Best Practices - Start gathering **EBITDA calculations**, interest expense details, and related procedures now. - Engage accounting and legal advisors to assess exposure under GAAR and Thin Capitalisation rules. - Monitor upcoming guidance: ATO is developing **Practice Statement PS-LA** and draft PCGs related to transitional lodgment and exemptions. ([ato.gov.au](https://www.ato.gov.au/about-ato/ato-advice-and-guidance/advice-under-development-program/advice-under-development-international-issues?utm_source=openai)) - Document your structure, financial transactions, and rationale in case of audit. ## Timeline & Effective Dates - Thin capitalisation changes apply for income years **on or after 1 July 2024** for many measures. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) - GloBE and Domestic Minimum Tax became effective from **1 January 2024** for Income Inclusion Rule & Domestic Minimum Tax; Undertaxed Profits Rule affects from **1 January 2025**. ([ato.gov.au](https://www.ato.gov.au/media-centre/key-developments-in-tax-administration-in-australia?utm_source=openai)) ## Summary These integrity-focused changes alter the playing field for large businesses, multinationals, and anyone relying heavily on cross-border finance or intangible asset flows. **Preemptive planning, updated structures, and robust documentation** will help manage risks and capitalize on safe harbours. The time to act is now—not once reporting deadlines arrive.