On July 1 2014, changes to Australia's thin capitalization rules entered into effect. The changes include:
- A reduction in the safe harbor debt to equity ratio from 3:1 to 1.5:1 for general entities, and from 20:1 to 15:1 for non-bank financial entities
- A reduction in the worldwide gearing ratio test for outbound investment from 120% to 100%, and allowing the application of the test for inbound investment
- An increase from 80% to 100% for the worldwide capital ratio for authorized deposit-taking institutions (ADI)
- An increase in the safe harbor capital limit for ADIs from 4% to 6% of their risk weighted Australian assets
- The de minimis threshold for the application of the thin capitalization rules is increased from debt deductions of $250,000 or less to debt deductions of $2 million or less
The changes generally apply to both existing and future debt arrangements.