Australia currently limits the deductibility of interest if a company's debt-to-equity ratio exceeds 3:1 (The safe harbor test). In such cases, an arm's length debt test must be satisfied in order to deduct excess interest expense. Under current rules, it is the responsibility of the taxpayer to prove that any debt financing of the business is at arm's length.
It is expected that the safe harbor limit will be lowered to 1.5:1, giving rise to an increased burden on a greater number of taxpaye…