Your preferred office location:
  1. Home
  2. /
  3. HHG Articles
  4. /
  5. Tax Reform — OECD Hybrid Mismatch Rules
16 Mar 2018

In November 2017 the Federal Government circulated the Treasury Laws Amendment (OECD Hybrid Mismatch Rules) Bill 2017 (Bill). If passed in its current form, Schedule 1 of the Bill will implement the OECD hybrid mismatch rules through the insertion of Division 832 into the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

New Division 832 aims to prevent entities liable to income tax in Australia from avoiding income taxation, or obtaining a double non‑taxation benefit, through the exploitation of differences between the tax treatment of entities and instruments under the laws of two or more tax jurisdictions.

The proposed rules are largely in line with the OECD recommendations but with some variations specific to Australia.

What is a hybrid mismatch?

 Broadly, under the proposed rules in Division 832 a hybrid mismatch will arise if:

  1. An entity enters into a scheme that gives rise to a payment; and
  2. The payment gives rise to either
  • A Double Deduction Mismatch: occurs when the payer receives a deduction for the same expenditure in two jurisdictions; o
  • A Deduction/Non-inclusion Mismatch: occurs when a deduction is allowed for a payment in one country (i.e. the payer’s jurisdiction), but it is not included as assessable income in the recipient country (i.e. the recipient’s jurisdiction).

However, the proposed rules will only apply if a hybrid mismatch is attributable to one of the following five hybrid mismatch arrangements:

  1. Hybrid financial instruments mismatch (for example, an Australian company issues redeemable preference shares to a foreign company. These shares are treated as debt in Australia and give rise to deductions but the foreign country has a participation exemption in relation to the dividends);
  2. Hybrid payer mismatch (for example, an Australian company makes a deductible payment to its foreign parent in circumstances where the Australian company is treated as tax transparent in the foreign parent’s jurisdiction and the payment is disregarded in the foreign jurisdiction);
  3. Reverse hybrid mismatch (for example, an Australian company A makes a deductible payment to a foreign group member B (a partnership) owned by C and resident in a country in which C is regarded as liable for the payment. However, in C’s tax jurisdiction B is regarded as a separate legal entity and does not subject the payment to tax;
  4. Deducting hybrid mismatch (for example, where an payment by a foreign company is deductible in Australia and the foreign country);
  5. Imported hybrid mismatch (where payment is made directly or indirectly by an Australian taxpayer to a non resident and that payment funds the return on a hybrid arrangement).

 Subject Entities

 An entity will be subject to the hybrid mismatch rules in the following circumstances:

  1. The entities are in the same Division 832 control group – a group that is consolidated for accounting purposes or where the entities have at least 50% common ownership or one of the entities holds at least 50% in the other entity;
  2. The arrangement is a structured arrangement, being one where the payment gives rise to a hybrid mismatch and either: the hybrid mismatch is priced into the terms of the scheme; or it is reasonable to conclude that the scheme has been designed to produce a hybrid mismatch.

For the purposes of determining whether a hybrid financial instruments mismatch exists, the 50% ownership threshold is lowered to 25%.

Neutralising hybrid mismatches

In general, if a hybrid mismatch arises, the tax advantage obtained from the mismatch is ‘neutralised’ by, including an amount in the entity’s Australian assessable income or disallowing a deduction in Australia.


A carve-out applies to financial instruments and arrangements with a term of three years or less.   However, as currently drafted, there are no additional de minimis rules or materiality thresholds to otherwise restrict the application of the proposed rules. 

What Next?

The Government has indicated that additional rules covering branch mismatches and targeted integrity rules will also be included in due course.

The rules proposed in the Bill will commence six months after the Bill receives Royal Assent and, importantly, there will be no ‘grandfathering’ relief for existing arrangements. This commencement date may also apply to the (as yet undrafted) branch mismatch and targeted integrity rules.

Whilst Taxpayers participating in cross-border transactions after the Bill’s commencement date will need to consider whether proposed Division 832 applies to their arrangements, the lack of ‘grandfathering’ relief means that existing arrangements should also be evaluated and, if appropriate, restructured. Any evaluation of these arrangements will also need to consider the (currently undrafted) targeting integrity rules. 

At HHG Legal Group our team of tax law specialists can provide you with the necessary advice to determine if and how proposed new Division 832 applies to your existing and future arrangements.

This is general information only, and does not constitute specific legal advice. If you would like further information in relation to this matter or other legal matters please contact our office at reception@hhg.com.au or call us on 1800 609 945.

Download as pdf

*This is general information only, and does not constitute specific legal advice. Please consult one of our experienced Legal Team for specific advice relevant to your situation.

Supporting Western Australians for more than 100 years

"Always fast and thorough service. Thank you"

Sitka Pil

"My circumstances at the time I made contact with HHG were dire following my argument being rejected by two no win no fee firms. Following my initial meeting with HHG's employment law team I was left feeling extremely positive by the response and concern shown by HHG in regards to their support of my argument along with their preparedness to pursue an outcome on my behalf.

I accept the fact that nobody really wins in these cases (mental health/ workplace) however the end result was what would be considered most favourable and far in excess of what would have been achieved had I not sought the advice from HHG.

I have no hesitation in recommending HHG to anyone caught up in the messy circumstances I found myself in at the time.

Great advice and five-star commitment to their client!!"

Nathan Lynch

"Thank you for such great assistance with the transaction of Flying Domestics on behalf of Lorna Good. It has been such a pleasure to work with the HHG Legal Group and I look forward to working with you in the future."

Jim Goodwin

"Simon Creek and his team were at all times empathic, professional and confident.  My matter needed to be addressed within a pressing time frame, and their availability at short notice and contact after hours was much appreciated.  It caused me considerable stress, but having such a thoroughly reliable and competent team to call on helped me to feel in control. Although I hope not to need their services again in future, I would be confident in doing so!"

Dr Lana Bell

"A good outcome is what we can expect.  A great outcome is a sign of a company which does the very best for their clients. A very big thank you to Daniel Morris for showing empathy towards my small and much needed legal action.

To HHG Legal Group, thank you for a great outcome.  I would recommend your company to anyone seeking legal services."

Jan Atkinson

"Your support this morning was amazingly kind, not to mention your totally reassuring competence, knowledge and wisdom that you used on my behalf.  It was extremely reassuring to have your knowledgeable support, and I particularly appreciated your real and obvious kindness to me. It means so much at a very difficult time. I'm so grateful to you."

Family Law Client

"Janene was very professional and we established a good rapport quickly. The subject of death and wills can be quite confronting to deal with, however, Janene's approach was soft and accommodating."

Lynette Livesey

"A big thank you to HHG for their professional service, continued support, and wide range of legal knowledge. Our clients have given us nothing but kind words regarding HHG Legal Group and so we have no hesitation in referring and recommending Simon Creek and HHG Legal Group for their outstanding services and legal expertise."

Nigel Plowman, Director at Mckinley Plowman & Associates

"Simon is a friendly and practical legal advisor. I have received great feedback from the clients I have referred to him and his team at HHG Legal Group."

Richard Beal, Director at BDO

"Over the last few years, I have been impressed by Simon’s legal ability, management skills, entrepreneurial spirit, personal integrity and people skills. He appears to be that rare breed of lawyer – both knowledgeable and commercial."

Michael Malone, Founder of iiNet

"Our family has been a client of HHG Legal Group over many years.  Business has included drawing up of wills for three generations and preparing of probate for my father in law. I would have no hesitation in recommending HHG Legal Group to anyone requiring such services."

Bernice Climie

"You should be congratulated for the manner in which your staff address clients and we found our dealings with your company, once again a very pleasant experience and we would like to truly thank you for your efforts."

Steve Harvey and Jane Powell

"HHG Legal were absolutely fantastic. Extremely responsive and brought calm to our chaotic family situation through their knowledge and caring attitude. Extremely professional from our very first contact with them and they expertly guided our family though the required legal process over almost a 12 month period."

Amanda Williamson

"Fantastic team! They really care about their client. Tim Colcutt is a 'go that extra mile' guy who gives his client his all. I can't recommend HHG and Tim enough."

Kerry Samson

"I had a fantastic lawyer in Matthew Lilly. He helped me out a great deal with good, sound advice in a friendly, professional manner. First class, thanks Matthew"

Graeme Hammond

"Marine Plant Systems has been working with HHG Legal Group for a few years now and they continually provide first-class service. Their professional advice has been invaluable to our company."

Carolin Grimm - Marine Plant Systems

"We were kept up to date at all times. Pricing was always updated over the time period so we remained "in budget". Personal access to someone whenever I had questions. All in all a great experience without too much fuss."

Rosslyn Tasker - COO Altusq Pty Ltd

"Good service you can count on."

Miles Lee

"HHG Legal Group has provided outstanding support as I have taken the journey of buying a business, their professionalism is beyond reproach. Their assistance throughout the Due Diligence process has been invaluable, I would fully recommend them."

Mark Armitage

"Very friendly and efficient service - what a pleasure working with Matthew."

Jacques Taylor

"I highly recommend Daniel from HHG Lawyer in Mandurah. When dealing with a complicated legal property matter recently I was extremely impressed by Daniel's honesty and integrity and the legal advice I received. I am very happy with the service from HHG Legal."

Tony Walker

"Lisa, thank you so much for representing me in court, honestly, I would not have had the outcome I got without you. Once again, Thank you so much."


"Matthew Lilly was excellent in processing our project. He achieved the excellent result that we required on our project.

We would give Matthew a 5 star rating.

We will definitely commission Matthew for any further projects if we have the need."


"I have had the pleasure of being represented by Ms Lisa Riley. Lisa helped me in December 2020 when I was charged. Lisa was extremely supportive, reassuring, and preserved with her investigation of the laws and was able to save me from a terrible outcome. Another incident occurred in August 2021 in which I sought Lisa’s help. Lisa preserved and was very patient with me. This only got resolved this year. When she advised me that she was leaving her old firm, I insisted that she remain my lawyer, as I had the utmost faith in her. Hence I moved over to HHG. Lisa took no shortcuts in my defence and continued to preserve for the toxicology report that ultimately saved me. She kept me up-to-date with the progress and provided support. Having someone as understanding as Lisa was a huge gift, to me and my family. You have gained a huge asset in Lisa joining your firm.

Thank you, Lisa, forever grateful for your work, and if ever needed, I will be sure to refer to you"


"We can highly recommend HHG Legal Group and particularly Mr Blair Campbell (Special Counsel / Dispute Resolution)

Blair worked with us as we navigated a very difficult third party dispute.

Blair’s expertise, wisdom, and the way he guided us in a very measured and calm manner gave us great encouragement and comfort. Blair helped us to focus on what we needed to and to trust the process.

Blair was always responsive to us, he always got back to us very promptly to answer our questions and to help us to step through some really hard days.

We are very grateful for Blair’s expertise and wisdom along with his empathy and care, this truly made the difference for us."

Wayne and Janice Belcher

Preferred office location:

Please select your nearest office location so we can show you the most relevant information.