Debt deduction creation rules now operative for many taxpayers

Broadly, where entities have debt deductions that arise in relation to the acquisition of assets from associates, or fund distributions or royalties to associates, the rules will permanently deny those deductions.

The rules can apply to wholly domestic arrangements, and the lack of transitional rules means that historic funding arrangements may now result in significant denials of deductions.

Further, new and existing integrity provisions may prevent entities from restructuring their arrangements to avoid the application of these provisions.

What are the Debt deduction rules about?

From 1 July 2024, the DDCR will broadly apply to deny debt deductions (e.g. interest) that are paid or payable in relation to loans and debts to associates in two key instances:

1. Acquisitions of assets or obligations from an associate ("asset acquisition rule"); and
2. Where financial arrangements are used to fund one or more prescribed payments or distributions to an associate ("payment or distribution rule").