Practical Compliance Guideline PCG 2025/2 (the PCG) was issued by the Australian Tax Office (ATO) on 20 August 2025. The PCG outlines the ATO’s compliance guidance on the application of the general anti-avoidance rule (Part IVA) and the DDCR specific anti-avoidance provision (section 820-423D) to restructures in response to the thin capitalisation rules amendments in 2024.
The PCG applies to restructures entered into on or after 22 June 2023.
Schedules 1 and 2 of the PCG were first released in draft in October 2024, and Schedules 3 and 4 were later released in December 2024 (together with the draft third-party debt test (TDPT) ruling, TR 2024/D3). Schedule 3 of the PCG dealing with the TPDT has not been finalised at this stage and effectively remains in draft. Schedule 3 will be finalised together with the finalised TDPT ruling. The ATO states that these will be finalised later in the year.
Read Third-party debt test and restructures in response to the thin capitalisation changes to learn more about the ATO's draft guidance released on 4 December 2024.
Restructures: ATO’s risk assessment framework
The PCG provides a risk assessment framework in order for taxpayers to self-assess the risks associated with restructuring in response to the thin capitalisation and DDCR rules and understand the ATO’s compliance approach.
The risk assessment framework is broken into the following classifications:
| Risk zone | Risk level |
|---|---|
| White | Further risk assessment not required |
| Yellow | Compliance risk not assessed |
| Green | Low risk |
| Red | High risk |
Download KPMG's ATO guidance on restructures, thin capitalisation and DDCR for further information.
KPMG observations
Given the time it has taken for the draft PCG to be finalised there was an expectation of more comprehensive updates to the draft than have been made. In addition, many of the issues in relation to the TPDT remain outstanding more than two years after the rules first took effect.
Key updates in the finalised PCG include:
- the inclusion of examples illustrating:
- a ‘fair and reasonable’ method of tracing and apportionment of funds used partly in connection with a DDCR transaction (example 15 – 17)
- low risk restructures involving related party debt being replaced with third-party debt, where an entity does not otherwise have the financial capacity to immediately repay the related party loan (examples 20 & 21)
- a high-risk restructure where an Australian entity indirectly uses related party debt to fund its offshore operations (example 28).
- changes to the risk assessment framework to include taxpayers who satisfy the thin capitalisation de minimis exception in the white zone, as well as taxpayers who receive a ‘low-risk’ rating (previously, this fell into the green zone)
- The ATO has also clarified its position on key topics raised during the consultation process, including:
- no grandfathering will be allowed for historical transactions
- no ‘de minimis’ threshold applies for record keeping requirements
- where debt ultimately is sourced from third parties, it will not be considered low risk in circumstances where it would qualify for the conduit financier test if the TPDT choice was made.
To learn more about the impact of the ATO's guidance on restructures, thin capitalisation and the DDCR, download our article or contact KPMG's tax specialists.
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Find out more about the ATO's guidance on restructures, thin capitalisation and DDCR.
ATO guidance on restructures, thin capitalisation and DDCR
Insights into the ATO's finalised guidance released on 20 August 2025.
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