Private capital: tax scrutiny for private equity‑backed deals across the investment lifecycle

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: 

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.