Home Property Australia Senate Committee recommends amendments to Thin Capitalisation regime

Senate Committee recommends amendments to Thin Capitalisation regime

  • September 27, 2023
  • by Property Australia
The Property Council addressed the Committee at its recent public hearings

The Senate Economics Legislation Committee has released its report on the Treasury Laws Amendment (Making Multinationals Pay Their Fair Share – Integrity and Transparency) Bill 2023, recommending amendments to Thin Capitalisation rules that otherwise prevent third party capital receiving deductibility as it does in other global jurisdictions.

The Committee’s two recommendations are that Schedule 1 of the Bill pass unamended, while Schedule 2 of the Bill (which relates to Thin Capitalisation) be passed subject to technical amendments foreshadowed by Treasury.

Property Council Chief Executive Mike Zorbas said if the Treasury Laws Amendment Bill 2023 cannot be improved, an estimated 150,000 build-to-rent (BTR) apartments, and the government’s 1.2 million homes target, hang in the balance.

“The global capital that builds the largest productive parts of our cities from logistics hubs to the commercial hearts of our CBDs will have a clear competitive reason to head elsewhere,” he said.

The Property Council said in April that 20,000 build-to-rent apartments currently in planning were “put at risk” by the proposed legislative changes. 

The Property Council’s evidence to the Committee noted that:

  1. The Bill will put at risk investment a minimum of 20,000 BTR apartments currently under construction or in the planning phase, while jeopardising the feasibility of the 150,000 BTR apartments in the pipeline over the next decade
  2. The Bill’s provisions extend beyond its expressed objectives with unintended consequences. If the Bill is passed without targeted and specific amendments, it will materially reduce the allocation of global capital into the Australian property sector
  3. The Bill overreaches its objectives by expanding the Commonwealth’s revenue base at the cost of new housing projects
  4. Amendments to the Bill can easily be made, so that it appropriately addresses integrity risks, facilitates standard commercial lending arrangements in the property sector and avoids contributing the Australia’s housing affordability crisis.

The Committee thanked submitters for their work proposing options for the government to improve the remit and application of the Bill. Through its own evidence, Treasury showed an openness to addressing feedback, including consulting with stakeholders on technical amendments to Thin Capitalisation rules so they better accommodate trust structures, and the function of debt deduction creation rules and the critical anti-avoidance impacts they will have.

Reflecting the Property Council’s strong advocacy, the Committee made 73 separate references to the Property Council’s evidence throughout the report.

The Property Council is continuing to engage with Treasury on the detail of those amendments.

The Property Council noted that it remains conscious that this is a complicated area of policy and that minor differences in drafting can have significant implications. The Property Council said it will continue to work closely with all stakeholders to ensure that they avoid any further barriers to investment in Australia’s property sector or a delay to the government’s ability to meet its target of 1.2 million new homes by 2029.