Tax Bites EP16: Thin capitalisation update: The Third Party Debt Test and Recent ATO Draft Guidance PCG 2025/D2

In this episode of the Herbert Smith Freehills Kramer 'Tax Bites' podcast, host Toby Eggleston alongside Professor Graeme Cooper and fellow partner Ryan Leslie, explore the complexities of the third party debt test as it relates to Australia's thin capitalisation rules. Key discussions include the overview and operational intricacies of the third party debt test introduced to replace the arm's length debt test, the guidance and issues arising from the ATO, and the impact of these changes on the infrastructure and property sectors. Special segments also cover the ATO's draft practical compliance guidelines on related party financing and the tax risk associated with the quantum of debt. In addition, the episode highlights updates on Section 899, U.S. tax policy interactions, and a farewell to fan favourite, Graeme Cooper after his substantial contributions to the firm.00:10 Introduction and Welcome00:54 Overview of Thin Capitalisation Rules02:56 Third Party Debt Test Explained06:11 Emerging Issues with Third Party Debt Test12:34 Practical Challenges and Industry Reactions20:14 Conduit Financing and Swap Costs28:04 Draft Practical Compliance Guide (PCG) PCG 2025/D244:01 Closing Remarks and Farewell