About the private equity program
The Private Equity program is funded by the Tax Avoidance Taskforce. The program of work seeks to give the community confidence that Australia’s largest privately owned and wealthy groups and public or multinational groups involved in private equity are paying the right amount of tax.
The establishment of a private equity program recognises the scale of private capital investment in Australia, as well as the unique features and the tax issues related to the entities and structures that are often used.
Our approach to private equity
Private equity can be understood as investors pooling capital into a fund managed by a private equity firm and using the pooled capital to invest in a target (often a business or venture). The investment is usually for a specified period of time and made for the purpose of realising a gain.
We tailor our approach for domestic and international firms and their participants across the investment lifecycle. Our approach considers all:
- participants in the private equity industry, including firms, investors, funds and targets
- stages of the investment lifecycle, including pre-acquisition, acquisition, holding, pre-exit and exit.
Private equity domestic approach
Our domestic approach focuses on Australian based private equity firms and their associated private equity participants including the investors, funds and targets. Owners of domestic private equity firms and family offices that undertake or participate in private equity activities are included as participants.
Our domestic approach includes risk-based reviews that consider tax risks identified for participants. The potential tax risks are broad and will vary depending on the activities and transactions of participants at different stages of the investment lifecycle.
Compliance activities are undertaken through our Tax Avoidance Taskforce programs of work, including Medium and emerging, Next 5,000 and Top 500.
Domestic private equity participants can engage with us through commercial deals for matters post-deal and pre-lodgment. The commercial deals service can provide taxpayers with certainty on significant business transactions, such as:
- initial public offerings
- mergers and acquisitions
- restructures.
Domestic private equity participants can also engage with us through our advice and guidance services.
Private equity international approach
The international approach focuses on global private equity firms and their associated participants, including the funds and their investors, as well as the Australian targets.
Our international approach comprises various risk-based reviews focusing on the investment lifecycle, as follows.
Pre-acquisition – when Australian investments require foreign investment approval from the decision maker (the Treasurer), we:
- have a dedicated tax consult area that is consulted on foreign investment proposals;
- consider all tax risks associated with the proposed transaction through a private equity lens; and
- recommend conditions requesting further information to mitigate these risks. For further information, see Guidance Note 12 on foreigninvestment.gov.auExternal Link.
We do this to assist the Treasurer in making a decision as to whether an action is contrary to the national interest.
Acquisition – our early engagement reviews focus on:
- particular acquisitions by global private equity funds
- addressing any potential tax risks identified in this early phase.
Holding period – our holding period reviews focus on particular investments during the holding period of a private equity investment. These reviews will provide us with:
- a greater level of assurance over investments and activities during this phase
- a broader picture across the investment lifecycle.
This is an opportunity for private equity funds to:
- work with us to understand any areas of concern
- understand our likely approach to the treatment of risks and potential taxing points at divestment.
Pre-exit and exit – foreign investment conditions may require engagement with us before private equity divestments. If we have identified exit-related risks during one of our reviews, we:
- will request engagement prior to divestment
- may seek security guarantees to protect Australian tax revenues, if required.
Our firm reviews focus on:
- all identified investments by a global private equity firm into Australia
- forming a holistic view of the private equity firm.
Our work also involves engagements through the existing Top 100 and Top 1,000 programs, as well as audits and other compliance engagements.
We can resolve tax technical issues relating to an international private equity deal with an Australian target and work towards an agreement on the tax position you intend to take; helping to reduce the likelihood of a compliance review.
Internationals can talk to us about their private equity investments, email PGPrivateEquity@ato.gov.au.
Published advice and guidance
Published advice and guidance that may be relevant for you includes:
- Taxation Determination TD 2010/20 Income tax: treaty shopping – can Part IVA of the Income Tax Assessment Act 1936 apply to arrangements designed to alter the intended effect of Australia's International Tax Agreements network?
- Taxation Determination TD 2010/21 Income tax: can the profit on the sale of shares in a company group acquired in a leveraged buyout be included in the assessable income of the vendor under subsection 6-5(3) of the Income Tax Assessment Act 1997?
- Taxation Determination TD 2011/24 Income tax: is an 'Australian source' in subsection 6-5(3) of the Income Tax Assessment Act 1997 dependent solely on where purchase and sale contracts are executed in respect of the sale of shares in an Australian corporate group acquired in a leveraged buyout by a private equity fund?
- Taxation Determination TD 2011/25 Income tax: does the business profits article (Article 7) of Australia's tax treaties apply to Australian sourced business profits of a foreign limited partnership (LP) where the LP is treated as fiscally transparent in a country with which Australia has entered into a tax treaty (tax treaty country) and the partners in the LP are residents of that tax treaty country?
For more information, see: