Budget to materially impact M&A tax, transaction strategy: Grant Thornton

The budget poses potential material impacts on M&A activity across the Australian markets, including effects on transaction timing, deal structures, valuation dynamics and after-tax outcomes for both buyers and sellers, Grant Thornton partners said.

The M&A landscape has faced major disruptions over the past months, beginning with favourable economic conditions late last year, followed by global volatility driven by developments in the conflict in the Middle East, and the impacts of the 2026 federal budget.

In an article, Grant Thornton national head of the agribusiness, food and beverage industry group Cameron Bacon, and Grant Thornton partner Vince Tropiano said that the Treasury’s 2026 budget deepens the inseparability of tax and transaction strategy.

“Incremental tax changes have cumulative effects on value, risk allocation and deal execution across the M&A lifecycle,” the authors said.

In the face of stronger ATO scrutiny and evolving rules, the authors emphasised the importance of early planning, robust tax governance and integrated deal strategy, being key to executing successful transactions

“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,” Bacon and Tropiano added.

The firm noted that sellers may seek to preserve value as buyers factor in new tax realities, which in turn drives increased use of flexible structures such as earn‑outs, rollovers, and deferred consideration.

Following the introduction of its Tax Reform No.1 Bill on 28 May, the Treasury announced that it would: “replace the 50 per cent CGT discount for individuals, trusts and partnerships with cost base indexation and a 30 per cent minimum tax rate on capital gains accruing from 1 July 2027”.

With three different tax calculation methods coming into effect from 1 July 2027 – the tax-free component for pre-CGT assets, 50 per cent exemption for pre-1 July 2027 gains, and indexation for post-1 July 2027 gains – the authors stressed that this “gives rise to a myriad of questions around investment strategies and potential timing of any disposals”.

“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,” Bacon and Tropiano said.

“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.”

In addition, the authors said said the introduction of a 30 per cent tax on discretionary trust income from 1 July 2028 had 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,” they said.

“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.”

Despite these impacts, the authors noted that the budget contained measures that support 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.”

The authors said that increased funding for ATO compliance and review activities would raise the bar for tax governance and the execution of diligence.

“Buyers are likely to place greater emphasis on compliance history, documentation quality and structural integrity during M&A processes.”