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The Government’s announcement that it will stop tax deductions for interest costs on overseas investments further erodes funding options for Australian businesses.
Debt funding is an attractive alternative to equity as interest costs can be deducted for tax, like other business costs. However, law is to be introduced to stop tax deductions where funds are borrowed to invest overseas. Every Australian company with foreign operations will need to review how these are funded to ensure existing arrangements will remain viable.
The new law will provide an immediate disincentive to Australian businesses to expand into foreign markets and further puts Australia at risk as a desirable head office location, according to leading accounting and advisory firm Grant Thornton Australia.
“It is becoming increasingly difficult to recommend to global clients that they should locate their regional headquarters in Australia”, said Michael Catterall, Tax Partner at Grant Thornton.
“Recently, tax reforms have focused on encouraging Australia’s position as a regional hub for business. These measures signal a reversal of that policy at a time when confidence is already fragile and foreign investment most needed.”
“We can expect multi-nationals to look at this change as another reason not to invest Australia. We need to give our clients compelling reasons to invest here at a time when business costs are at an all-time high. These measures make Australia an even harder sell”.
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About Grant Thornton Australia Limited
Grant Thornton Australia provides audit, tax and advisory services to dynamic, growing organisations and is a single national firm, with over 150 Partners, more than 1,200 people across Australia and national turnover of AUD $232 million. Grant Thornton International is the fastest growing international accounting network in the world, with a global turnover of US$3.7billion and more than 30,000 people, and was recently named 2013 Network of the Year by the International Accounting Bulletin.