Federal Budget implications for M&A activity and transaction strategy

Delivered against a backdrop of elevated inflation, higher interest rates and increasing economic uncertainty, this Budget reflects a Government balancing near‑term pressures with incremental structural reform. 

Changes to Capital Gains Tax  

The Government announced it intends to introduce legislation to amend the Capital Gains Tax (CGT) discount. The current law allows individuals, partners in partnerships, and trusts to discount capital gains realised on the disposal of CGT assets held for more than 12 months by 50 per cent.    
 
Under the proposed legislation, from 1 July 2027, the 50 per cent discount will be replaced by a cost-base indexation method. This method will allow taxpayers to index the cost base of CGT assets held for more than 12 months. Additionally, a 30 per cent minimum tax on net capital gains will apply for capital gains made by individuals, trusts and partners in partnerships.   
 
The changes will apply to all CGT assets, including pre-CGT assets disposed from 1 July 2027. Under the transitional arrangements, the impact on existing investments will be limited by ensuring the changes only apply to gains arising on or after 1 July 2027. The 50 per cent CGT discount will continue to apply to gains arising before 1 July 2027, and capital gains on pre-CGT assets arising before 1 July 2027 will continue to be exempt from CGT. Investors in new residential housing will be able to choose between applying the:   

• 50 per cent CGT discount, or   
• the cost-base indexation method and 30 per cent minimum tax on the capital gain.     

From 1 July 2027, three different tax calculation methods will effectively be in operation at once, being: 

• the tax-free component for pre CGT assets, 
• the 50 per cent exemption for pre 1 July 2027 gains, and 
• indexation for the post 1 July 2027 gains. 

This gives rise to a myriad of questions around investment strategies and potential timing of any disposals.  

While transitional arrangements ensure only gains arising after that date are affected, these changes will reset after‑tax exit economics for many private business owners and investors. 

For sellers, this brings transaction timing into sharp focus. Decisions around accelerating, deferring or staging exits will increasingly be informed by tax outcomes, not just market conditions. For buyers, the reforms may widen valuation gaps as vendors seek to preserve net proceeds, increasing the importance of flexible deal structures such as earn‑outs, rollovers or deferred consideration. 

The introduction of a 30 per cent tax on discretionary trust income from 1 July 2028 has further implications for M&A. Given the prevalence of discretionary trust structures in private groups, sale proceeds and post‑transaction distributions may be taxed less efficiently. While three years of rollover relief from 1 July 2027 provides a restructuring window, ownership and structuring decisions will require earlier and more deliberate planning in advance of transactions. 

There are also supportive measures for deal activity. The permanent reintroduction of loss carry-back for companies under $1b turnover and the permanent $20,000 instant asset write-off have the potential to strengthen cash flows, earnings quality and balance sheets. These measures improve transaction readiness and provide greater confidence in forward earnings, particularly in a softer economic environment. 

At the same time, increased funding for ATO compliance and review activities raises the bar for tax governance and diligence execution. Buyers are likely to place greater emphasis on compliance history, documentation quality and structural integrity during M&A processes. 

Grant Thornton perspective 

This Budget reinforces that tax and transaction strategy are now inseparable. Incremental tax changes have cumulative effects on value, risk allocation and deal execution across the M&A lifecycle. Participants who engage early, model multiple scenarios and integrate tax, valuation and deal structuring will be best placed to navigate the evolving landscape and execute successful transactions. 

If you would like to discuss how the Federal Budget changes may affect your transaction strategy, business value or exit planning, please reach out to our advisers. We welcome the opportunity to help you assess the implications and plan with confidence. 

Federal Budget insights

Federal Budget 2026-27

Visit hub