Australia proposes Side-by-Side safe harbours and DTL recapture amendments

Australia’s Treasury has released an exposure draft that would add Side-by-Side and ultimate parent entity (UPE) safe harbours to its Pillar Two Rules, alongside amendments to deferred-tax recapture, transparent-entity tax allocation and flow-through UPE ownership. The Tranche 4 consultation opened on 11 November 2026 and closes on 26 November. Treasury’s broader consultation index displays 12 November; the development-specific page gives the 11 November opening.

The draft Taxation (Multinational—Global and Domestic Minimum Tax) Amendment (2026 Measures No. 3) Rules 2026 is a proposal, not a registered instrument. Its section 2 would commence the instrument on the day after registration. Draft section 15-20 generally applies the amendments to fiscal years starting on or after 1 January 2024, while the two new safe-harbour elections expressly require a fiscal year starting on or after 1 January 2026.

Two distinct elections, with domestic minimum tax preserved

Schedule 1 item 10 would insert sections 8-230 and 8-235. Under proposed section 8-230, an annual election would treat relevant constituent-entity top-up tax and specified joint-venture shares as zero when computing the group’s total UTPR amount and a parent’s IIR amount. The UPE jurisdiction must be specified in a ministerial determination for a qualified Side-by-Side regime. A US parent alone would therefore not establish the Australian statutory election conditions.

Proposed section 8-235 is narrower. It would zero the relevant UTPR amounts for constituent entities and joint ventures located in the UPE jurisdiction. It would not provide general IIR relief for the group’s other jurisdictions. Both elections require a ministerial determination and the relevant fiscal year; the Minister must have regard to the Commentary and agreed administrative guidance. The explanatory statement, pages 6–7, expressly preserves Australia’s domestic minimum tax under both safe harbours.

What changes against the existing Rules

The current Rules, compilation 3 in force on 2 July 2026, contain transitional CbCR, non-material-entity simplified calculation, QDMTT and transitional UTPR safe harbours. They do not contain these proposed new Divisions 6 and 7. The November draft does not create the Pillar Two charge or introduce the 2027 CbCR safe-harbour extension: that extension was part of the earlier Measures No. 2 amendments.

Under sections 5 and 12 of the 2024 Act, the ordinary revenue test is EUR750 million in at least two of the four preceding fiscal years, with adjustments for non-standard periods and other statutory rules. IIR and domestic minimum tax already apply from fiscal years starting on or after 1 January 2024; UTPR applies from 1 January 2025. The Act’s section 3 directs consistent interpretation with OECD materials, but the draft’s specific elections and determinations still need their own legal implementation.

The consultation creates no new return or payment deadline. Groups should distinguish the 26 November response deadline from existing tax compliance dates. The member analysis below addresses the deferred-tax mechanics, the draft’s internal inconsistencies and the limited future proposal for wholly Australian groups.