Thin cap changes consistent with Basel III
Deloitte Federal Budget media releaseDOWNLOAD
15 May 2013: Tuesday’s Budget effectively picked up the Basel III changes to Tier 1 capital, by increasing the thin capitalisation minimum capital requirements for banks from 4% to 6%.
Deloitte Banking Tax Partner Patrick Broughan explained that thin capitalisation rules limit tax deductions according to a formula based on the amount of debt or capital held. He said: "For financial institutions it's not maximum debt levels, as for industrial companies, but minimum capital levels.
"For Authorised Deposit Taking Institutions, the 'thin cap' rules require minimum risk weighted capital to allow a tax deduction for interest paid. Under Basel III this has been increased from 4% to 6% and in 2016 it will increase further to 8.5%.
“For Australian banks this is unlikely to have significant impact in the short term as they are well capitalised," Broughan said.