Australia Overhauls Tax Rules for Private Equity

By Heather Phillips 13/07/2026 2 min read 13 views

Private equity investors in Australia face a shifting tax environment, with the Australian Taxation Office (ATO) intensifying its focus on debt structures, investment financing, and compliance through multiple channels. The developments span interest withholding tax exemptions, capital gains rollovers, and the Foreign Investment Review Board (FIRB) process.

The ATO has begun targeted consultations on the section 128F ‘public offer’ interest withholding tax exemption. This provision allows a tax exemption on interest paid on certain debentures and debt interests, provided they are issued through a qualifying public offer. Under the public offer test, debt must be made genuinely available to the public or a wide cross-section of it — for example, through offers to 10 or more unrelated qualifying financial investors. Private placements with a closely held lender group or borrower associates do not qualify.

The agency has flagged concerns that some entities may be incorrectly claiming the exemption by failing to satisfy this test. This has been an area of increased focus over the last two to three years. The scrutiny matters for PE-backed acquisition financings that rely on syndicated or club facilities with a relatively small lender group. Incremental or upsizing tranches, amendments, and refinancings may also struggle to clearly meet the public offer requirements.

The consultation is currently limited to banking and finance industry participants. It is expected to conclude in February 2026, after which the ATO will develop updated guidance on eligibility criteria and evidentiary requirements. Whether that guidance will be binding or simply offer broad practical guardrails remains unclear. PE sponsors and portfolio companies that rely on section 128F should prepare for closer examination of their funding structures and supporting documentation. Some FIRB approval processes are already requesting this level of detail.

The ATO has for years signaled that it would publish additional guidance on ‘back to back’ capital gains tax (CGT) rollovers. An example the agency has flagged involves a business carried on by a unit trust. Before a sale, unitholders place a new company on top of the trust — a “top hat” transaction — then sell the shares in the new company to a buyer. On a straight reading, the top hat transaction qualifies for CGT rollover, and a second rollover applies to the subsequent sale if sellers receive buyer shares. The forthcoming guidance is expected to address whether the substantive requirements for rollover are met, and whether the general anti-avoidance rules in Part IVA of the Income Tax Assessment Act 1936 apply to arrangements involving consecutive rollovers.

The timing was pushed back after litigation involving AusNet, which the Full Court of the Federal Court resolved in favor of the Commissioner. The ATO now expects to publish the guidance in early 2026 — though given the delays in the past, it remains uncertain if that timeline will hold.