What does the ATO’s microscope on private equity mean for investment?

As private equity activity continues to surge in Australia, the ATO and Foreign Investment Review Board (FIRB) will look to increase their scrutiny.

Earlier this month, the Tax Office shared details on its private group compliance focus for 2025–26, which included looking into tax risks that may arise from specific industries or activities such as private equity.

It was also revealed that the ATO would outline its approach and specific resources allocated to working with private equity groups as part of a broader tax avoidance taskforce.

Luke Imbriano, Corrs Chambers Westgarth tax and tax controversy partner, said there could be some significant impacts for investors and the broader community now that the area is more prominently under the ATO’s microscope.

“The increase in Australian private equity investments and their impact on the economy has caught the attention of the ATO,” he said.

“To action this, a specific private equity program has been set up within the ATO’s tax avoidance taskforce and a designated private equity team has been established to carry out compliance activities within the private equity industry.”

“The ATO has made it clear that private equity will continue to be a key focus area for their review activity.”

The comments and breakdown from Imbriano have come after The Australian Financial Review reported that the ATO was allegedly auditing at least two major foreign investment funds.

In terms of its approach and establishing a tax avoidance taskforce program, the ATO said it would seek to give the community confidence that Australia’s largest privately owned and wealthy groups, and public or multinational groups involved in private equity, paid 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,” the Tax Office said.

The program was noted to consider all participants in the private equity industry, including firms, investors, funds and targets, as well as the stages of the investment lifecycle, including pre-acquisition, acquisition, holding, pre-exit and exit.

The Tax Office also defined a private equity domestic approach and a private equity international approach, with the international approach homing in on global private equity firms and their associated participants, funds, investors and Australian targets.

It would also scrutinise and conduct various risk-based reviews focused on the investment lifecycle pre-acquisition, acquisition, holding period, pre-exit and exit.

Imbriano said with approximately half of the private equity commitments for Australian investments being sourced from offshore investors, FIRB was now playing an increasingly important role in the scrutiny of inbound foreign investments.

“The FIRB process is now being used as a tool to commence review of private equity investments at the pre-acquisition stage. It is becoming increasingly common to see ATO review-style queries arising at the FIRB stage,” he said.

“Questions have been raised as part of FIRB queries in relation to the use of certain interposed entities, holding jurisdiction rationale and broader fund operations of private equity investors.”

“The ATO and FIRB processes aim to ensure foreign inbound investments comply not only with rigorous domestic tax frameworks but also the added complexity of double tax agreements and broader international law.”

Based on this process, Imbriano warned that this would make the current investment climate in Australia complex to navigate and would potentially reduce the attractiveness of investments.