Australia’s recent capital gains tax (CGT) reforms, introduced by Treasury Minister Jim Chalmers, have raised concerns about their potential impact on the country’s private equity sector, particularly in relation to competition between domestic and foreign investors. The proposed changes, which aim to raise $77 billion, remove the 50 percent CGT discount for Australian-resident investors, a move that some industry figures warn could place local funds at a disadvantage compared to their international counterparts.

Angus Kilian, country lead for Carta ANZ—an operating platform managing $4 trillion in assets worldwide—highlighted the risks posed by the reforms to the mid-market segment of private equity. This segment typically involves Australian-domiciled and managed funds backing companies valued between $5 million and $500 million. These funds generally secure capital from superannuation funds, family offices, high-net-worth individuals, and domestic institutional investors.

Under the current tax structure, foreign private equity funds invest primarily through offshore entities. According to Division 855 of the Income Tax Assessment Act, foreign residents are only liable for Australian CGT on disposals of taxable Australian property such as real estate or mining assets. In contrast, sales of shares in Australian operating companies do not attract the same tax obligations for these foreign investors. This discrepancy means that while Australian-based investors would lose access to the 50 percent CGT discount following the reforms, foreign investors could largely maintain their existing tax position.

Kilian illustrated the potential consequences with the example of an Australian business valued between $150 million and $200 million seeking growth capital. An Australian fund bidding for the company would see a reduction in net returns due to the CGT changes, while a competing foreign fund’s investors—benefiting from existing tax provisions—would not face the same financial impact. This divergence could create a two-tier market dynamic, where investment decisions are increasingly influenced by tax considerations rather than investment merit alone.

The concern is that, over time, this could tilt the advantage towards international investors, who may be better positioned to provide capital to Australian growth businesses despite domestic funds arguably having a stronger understanding of local markets. Given that private equity is a returns-driven industry where even small differences in after-tax profits can determine competitive positioning, the reforms raise questions about the future landscape for Australian-backed private equity.

The Treasury’s CGT overhaul has largely been discussed in the context of start-up founders and venture capital, but the potential competitive disparity identified by industry stakeholders shows the broader ramifications for Australia’s private equity ecosystem. The government has yet to publicly address these specific concerns regarding the mid-market and the potential implications for domestic investment incentives.