What is private capital
Generally, private capital refers to investment capital that is sourced from the private markets. This investment capital can originate from institutional funds (for example, pension funds), family offices and wealthy individuals, and is often used to invest into companies or assets.
About the private capital program
The private capital program is funded by the Tax Avoidance Taskforce. The program seeks to give the community confidence that private capital investors owning Australian assets are paying the right amount of tax. It focuses on the private capital market in recognition of:
- the scale and growth of private capital investment in the Australian market
- the features, behaviours and tax issues related to private capital participants and structures.
This program of work is focused on the most commonly used private capital investment structures across:
- private equity
- foreign funds
- collective investment vehicles
- infrastructure and business fragmentation, including stapled structures.
The private capital program tailors its engagement with taxpayers throughout the private capital investment lifecycle. Although there are differences across private capital investments, most investments follow a similar 5 stage lifecycle: pre-acquisition, acquisition, holding, pre-exit and exit.
Pre-acquisition
This is the stage prior to finalising the acquisition. It involves the potential buyers completing due diligence and applying for any regulatory approvals required. Potential activities occur when:
- a target is identified
- a target may restructure.
Acquisition
This stage is reached once the acquisition is finalised and the potential buyer becomes the owner. Potential activities occur when the investment firm structures the transaction and sets plans for a future exit.
Holding
This is the period of time when the asset is held by the private capital owner. Potential activities occur when the investment firm works with management to create value and drive the target’s business strategy to maximise value on exit.
Pre-exit
This is when the owner is preparing to sell their investment. Potential activities occur when:
- the investment firm determines timing and structure of exit to maximise return to investors
- the investment firm takes steps to maximise cash extraction.
Exit
This is when the sale has finalised. The potential buyer becomes the new owner. Potential activities occur when the investment firm implements pre-exit or disposal plan.
What attracts our attention
Understanding the behaviours and characteristics that may attract our attention will help you get things right. These are:
- tax or economic performance isn't comparable to similar businesses, including comparable businesses that are not owned by private capital participants
- low transparency of your tax affairs, including uncertainty of your intended tax position after your disposal of an Australian asset
- aggressive tax planning and cross-border structuring to minimise or avoid tax, including the inappropriate accessing of benefits available under Australia's double tax treaty network
- costs incurred by foreign private equity investors, including those related to pre-acquisition and acquisition activities, being recharged and pushed down to Australian entities to claim deductions
- choosing not to comply, or regularly taking controversial interpretations of the law, without engaging with us.
Public and multinational business three-tier model
Our work is aligned with the public and multinational business three-tier model, which helps us understand the tax system in operation and guide our areas of focus for compliance. Our work across the private capital lifecycle and our industry strategies are primarily centred on the following focus areas:
- cross-border investment structures
- disposal of assets or businesses by foreign residents
- characterisation of disposals.
Our engagements with you may not be limited to the above focus areas and can cover any focus areas within the three-tier model where applicable.
Whilst the three-tier model covers key drivers of tax performance, there may be instances where potential non-compliance is detected but is not covered by the model. We may choose to investigate these cases even though the matter isn't reflected in the model.