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ARTICLE · 09 OCTOBER 2025

ATO Finalises Guidance On Third Party Debt Test

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

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On 1 October 2025, the ATO finalised its guidance on the third party debt test (TPDT) for thin capitalisation purposes in Taxation Ruling TR 2025/2 (Ruling)...

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1. Third Party Debt Test: Final ATO guidance

On 1 October 2025, the ATO finalised its guidance on the third party debt test (TPDT) for thin capitalisation purposes in Taxation Ruling TR 2025/2 (Ruling) and updated its compliance approach to restructures carried out in response to the TPDT in Schedule 3 of Practical Compliance Guideline PCG 2025/2 (PCG). Our observations on the prior draft guidance are available here.

By way of a refresher, the TPDT is one of three methods available for calculating allowable debt deductions for an entity subject to the thin capitalisation rules and it limits an entity's gross debt deductions for an income year to an amount equal to the sum of its debt deductions for that year that are, broadly, 'attributable to' debt interests:

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