As part of the ATO and FIRB's increased scrutiny on private capital transactions, private equity transactions will be reviewed across the full investment lifecycle – often starting at the FIRB stage.
Australia's private capital market has expanded, and private equity (PE) within that. Businesses backed by private capital now represent a meaningful share of GDP.
As a result of this growth, the Australian Taxation Office (ATO) established a dedicated PE program, supported by additional funding from the 2025-26 Federal Budget, which examines tax risks across the PE lifecycle – pre‑acquisition, acquisition, holding, pre‑exit and exit. This includes review by the ATO through the Foreign Investment Review Board (FIRB) approval process at the beginning of the investment lifecycle. The ATO's PE program applies to financial sponsors, including PE, foreign pension funds and sovereign wealth funds.
Tax considerations are critical to the success of a deal, and thorough engagement with the ATO should be expected at every stage. Where the ATO monitors an investment throughout its lifecycle, positions on complex tax matters can become entrenched. Robust tax governance is therefore critical to ensuring that tax risks are appropriately managed throughout the investment lifecycle, and ATO queries can be responded to efficiently and accurately.
FIRB is the first tax gate
FIRB is playing an increasingly important role in the scrutiny of inbound foreign investments. For inbound deals, FIRB is now the first gateway for tax scrutiny. ATO input at this stage is increasingly used to triage matters for subsequent review.
FIRB questions are increasingly considering the use of 'interposed' entities, entity jurisdiction rationale and broader fund operations. These requests can extend timelines, and inconsistent or inaccurate disclosure can create future risks.
Treasury's 2025 update to Guidance Note 12 also moved from 'standard' conditions to tailored, transaction‑specific tax conditions. PE investors can be required to:
- engage with the ATO and Treasury prior to any disposal;
- provide details of the disposal and the expected Australian tax
outcomes; and
- provide tax advice relevant to the transaction.
How the ATO reviews PE: the lifecycle
The ATO's PE program's main focus is to:
- improve the ATO's understanding of the PE industry;
and
- review the full lifecycle of an investment (along with the relevant entities involved in this process).
The lifecycle covers the following stages:
| Pre-acquisition | During FIRB assessment, the ATO is consulted and begins forming views on key risks. |
| Acquisition | ATO engagement often continues into acquisition. Areas of focus include the ATO's four PE taxation determinations (TD 2010/20, TD 2010/21, TD 2011/24 and TD 2011/25), investment decision making, the global holding structure and supporting evidence. |
| Holding Period | The ATO seeks to understand the fund's operations and its investment. Attention might be on fee push downs with corresponding debt deductions being claimed in Australia, recharge arrangements and questions around whether capital returns have been made in substitution for dividends. |
| Pre-exit and exit | ATO engagement commonly occurs in relation to proposed divestments by funds. Review areas include the potential application of Part IVA and the Multilateral Instrument, taxable Australian property status and permanent establishment implications. The ATO can also seek security for what it considers to be the correct amount of tax on exit. |
Firm Reviews
To form a holistic view, the PE program also undertakes firm-level reviews for larger PE fund managers, covering all identified Australian investments.
Updated ATO Guidance
The ATO has also updated their guidance on private equity and recently hosted a webinar which included a discussion on key risks and compliance themes guiding their engagement with PE in 2025–26.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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