How Budget 2026's Corporate Tax and Trust Reforms Will Reshape M&A, PE Exits and Deal Structuring in Australia

Australia’s Federal Budget 2026 introduced the most consequential package of corporate tax changes Australia has seen in over a decade, fundamentally altering the economics of M&A transactions, private equity exits and trust-based holding structures. The headline measures, replacing the longstanding 50 per cent capital gains tax (CGT) discount with cost-base indexation plus a 30 per cent minimum tax rate, imposing a 30 per cent minimum tax on distributions from discretionary trusts, and advancing domestic implementation of OECD Pillar Two global minimum tax rules, each carry discrete implications for deal pricing, seller economics and post-completion risk allocation. Together, they demand a wholesale rethink of transaction playbooks from due diligence through to warranty and indemnity drafting.

This guide translates the Budget 2026 corporate tax reforms into actionable steps for in-house counsel, CFOs, private equity GPs and M&A deal teams negotiating live or pipeline transactions.

Whether you are pricing an acquisition, structuring a PE exit or advising on tax risk allocation, this article provides the practical tools you need. Read this guide to:

• Understand the precise scope, timing and legislative status of each Budget 2026 tax measure.
• Model the pricing and after-tax impact of the CGT and trust reforms on share sales, asset sales and earn-outs.
• Adapt your tax due diligence checklist, warranty clauses and indemnity positions to the new landscape.
• Navigate Pillar Two implications for cross-border deal structuring and financing covenants.

1. Snapshot, Budget 2026 Corporate Tax Changes Australia: What Deal Teams Must Know

The Budget 2026 tax reform package, detailed on the official Budget tax reform page (Budget.gov.au), contains four pillars that directly affect M&A deal structuring in Australia. Deal teams should treat these measures as a single interconnected framework rather than isolated policy shifts.

CGT discount replacement. The existing 50 per cent CGT discount for individuals and trusts holding assets for more than 12 months will be replaced. In its place, taxpayers will apply inflation indexation to the cost base of the asset and then pay tax on the indexed gain at a minimum effective rate of 30 per cent. Per the Budget tax reform page (Budget.gov.au), gains on assets acquired from 1 July 2027 onward will be subject to the new regime, with transitional rules for assets held prior to that date.

Discretionary trust minimum tax. A 30 per cent minimum tax will apply to trust distributions from discretionary trusts. The Budget factsheet on minimum tax on discretionary trusts (Budget.gov.au) confirms this measure is intended to take effect from 1 July 2028. The ATO has published implementation guidance outlining the scope, including which trust types are covered and how the minimum interacts with existing streaming and attribution rules.

Company tax rate context. Australia retains a two-tier company tax rate structure, 25 per cent for base rate entities (aggregated turnover below the threshold) and 30 per cent for all other companies. The ATO’s company tax rate guidance confirms that Budget 2026 did not announce a change to these headline rates, but the Productivity Commission and academic commentary have noted the broader reform trajectory may revisit the 30 per cent rate in future fiscal cycles. For deal teams, the practical question is whether the target qualifies as a base rate entity and how that interacts with franking credit and dividend imputation outcomes at exit.

Pillar Two domestic implementation. Treasury has signalled continued progress toward domesticating OECD Pillar Two rules, including a qualified domestic minimum top-up tax (QDMTT) and an income inclusion rule (IIR) for multinational groups with consolidated revenue above EUR 750 million. Treasury media releases confirm this remains a legislative priority, with exposure draft legislation expected to follow.

Quick Timeline, Key Dates and Instruments

2. Immediate Deal Impacts, Pricing, Deal Type Preferences and Corporate Tax Changes Australia

The combined effect of the CGT and trust reforms is to narrow the after-tax gap between different exit structures, increase seller tax costs in many scenarios, and create new categories of contingent tax exposure that buyers must price or ring-fence. Industry observers expect these changes to shift negotiation dynamics materially during the transition period from announcement through to legislative enactment.

Share Sale vs Asset Sale, Practical Decision Checklist

Under the pre-Budget regime, individual and trust vendors strongly favoured share sales because the 50 per cent CGT discount delivered a maximum effective rate on capital gains of 23.5 per cent (for individuals on the top marginal rate). The replacement of this discount with indexation plus a 30 per cent minimum means the effective rate floor rises, and the benefit of a share sale over an asset sale narrows. Deal teams should now reassess each transaction against this checklist:

• Vendor entity type. Is the seller an individual, a discretionary trust, a unit trust or a company? The CGT changes primarily affect individuals and trusts; corporate sellers already pay at the company tax rate and are less directly affected.
• Holding period and inflation profile. Indexation benefits increase with longer holding periods and higher inflation. For assets held for fewer than five years in a low-inflation environment, the indexation adjustment may be modest, making the 30 per cent minimum the binding constraint.
• Target asset composition. Asset sales may now be more attractive where depreciable assets generate immediate deductions for the buyer, because the seller’s tax cost differential has compressed.
• Stamp duty overlay. State-level transfer duty on asset sales remains a countervailing cost, this must be modelled alongside Commonwealth tax impacts.

Who Bears the Tax, Purchase Price Adjustments and Risk Allocation

Where the seller’s after-tax proceeds fall because of the new CGT regime, the likely practical effect will be upward pressure on headline purchase prices or demands for tax-efficient deal structures (such as earn-outs or deferred consideration). Buyers should anticipate the following negotiation levers:

• Purchase price adjustments. Sellers may seek gross-up mechanisms or tax-adjusted price formulas that reference the new 30 per cent minimum rather than the prior discounted rate.
• Tax indemnities and escrow. Buyers should insist on broader tax indemnity coverage for pre-completion tax positions, particularly where the target or its shareholders include discretionary trusts that may face retrospective ATO scrutiny.
• Holdback mechanisms. A portion of the purchase price (typically 10–15 per cent) held in escrow pending confirmation that no additional tax liabilities arise under the new trust minimum tax provisions.

Worked example, illustrative pricing impact. Consider a PE fund selling shares in an Australian target via a discretionary trust structure. The trust acquired the shares for AUD 10 million and sells for AUD 25 million after a five-year hold. Under the pre-Budget 50 per cent CGT discount, the taxable gain is AUD 7. 5 million (50 per cent of AUD 15 million), yielding a maximum tax cost of approximately AUD 3. 5 million. Under the new regime, if cumulative CPI indexation over five years is 20 per cent, the indexed cost base rises to AUD 12 million, producing a gain of AUD 13 million. With a 30 per cent minimum tax, the tax cost is approximately AUD 3.

9 million, an increase of roughly AUD 400,000. Where the holding period is shorter or inflation is lower, the gap widens further.

3. CGT Changes and PE Exits, Timing, Structure and Drafting

The CGT changes Australia introduced in Budget 2026 represent the most significant structural shift to exit economics since the original introduction of the 50 per cent discount in 1999. For private equity exits in Australia, the practical consequences are both economic and documentary.

The new rules apply to gains on assets acquired from 1 July 2027 (Budget.gov.au). For assets already held at that date, transitional arrangements will determine how the cost base is treated, deal teams should monitor exposure draft legislation for the precise mechanics. The core change affects individuals, trusts and partnerships (to the extent partners are individuals or trusts); companies, superannuation funds and non-residents are subject to different rules.

Practical Exit Structures, Pros and Cons Under New CGT Rules

The key takeaway: for PE exits structured through trusts or individual investors, early indications suggest the post-Budget regime compresses the after-tax benefit of share sales relative to asset sales, making M&A deal structuring in Australia more sensitive to entity type and holding period than previously.

Drafting Points for Sale Agreements

Sale agreements executed after the Budget announcement, and particularly for transactions completing after 1 July 2027, should incorporate the following drafting adaptations:

• Tax representation scope. Expand the seller’s tax representations to cover compliance with the new CGT indexation methodology and the 30 per cent minimum tax obligation. Include a specific representation that the seller has calculated the indexed cost base in accordance with the legislation as enacted.
• Tax indemnity carve-outs. Ensure the tax indemnity extends to liabilities arising from the transition from the old CGT discount regime to the new indexation regime, including any ATO adjustments to cost base calculations.
• Gross-up clauses. Where purchase price formulas reference after-tax proceeds, update the gross-up mechanism to reflect the new 30 per cent minimum rather than the previously assumed discounted rate.
• Escrow triggers. Define escrow release conditions that include receipt of a final ATO assessment confirming the seller’s capital gains tax position under the new rules, or expiry of the relevant amendment period.
• Rollover relief. Where available (e.g., small business CGT concessions or scrip-for-scrip rollovers), document the basis for claiming rollover and include a covenant from the seller to cooperate in substantiating the rollover claim.

4. Trust Tax Reform Australia, Trustee and Beneficiary Consequences for Transactions

The introduction of a 30 per cent minimum tax on discretionary trusts is arguably the most disruptive element of the Budget 2026 package for private equity exits and multi-owner business sales. The Budget factsheet on minimum tax on discretionary trusts (Budget.gov.au) confirms the measure targets distributions from discretionary trusts to adult Australian resident beneficiaries, with the minimum applying from 1 July 2028. ATO guidance on the trust reform outlines that the measure is designed to prevent income splitting that results in effective tax rates below 30 per cent.

For transaction mechanics, this trust tax reform Australia introduces several layers of complexity:

• Distribution waterfall redesign. Trust structures commonly used in PE co-investment and management equity plans will need to recalculate after-tax returns for each beneficiary class, factoring in the 30 per cent floor.
• Streaming limitations. If streaming of capital gains or franked dividends to specific beneficiaries is constrained by the new rules, trustees will have less flexibility to allocate tax-efficient income to low-rate beneficiaries.
• Anti-avoidance overlay. The ATO has flagged that arrangements designed to circumvent the minimum tax, such as interposing additional entities between the trust and its ultimate beneficiaries, will attract scrutiny under existing Part IVA and potentially new specific anti-avoidance provisions.

Trust Restructuring and Pre-Deal Steps

Sellers holding assets through discretionary trusts should undertake the following steps well before commencing a sale process:

• Trust deed review. Confirm the trust deed permits the proposed distribution strategy under the new minimum tax regime. Amend the deed if necessary to ensure the trustee has power to make distributions in the most tax-effective manner available.
• Consider conversion. Evaluate whether converting the discretionary trust to a unit trust or corporate structure prior to sale produces a better after-tax outcome, factoring in any CGT event triggered by the conversion itself.
• Pre-sale distributions. Where appropriate, make distributions of accumulated income or capital prior to the 1 July 2028 effective date to lock in pre-reform tax treatment.
• Beneficiary mapping. Document all beneficiaries and their marginal tax rates to model the impact of the 30 per cent minimum on each distribution scenario.

Private Equity and Multi-Owner Holds, Redesigning Exit Waterfalls

PE fund structures that use discretionary trusts as co-investment vehicles or carried interest recipients face a direct hit to GP and management economics. Industry observers expect fund managers to reassess the following:

• Carried interest structures. Where carry is distributed through a discretionary trust to take advantage of income splitting, the 30 per cent minimum neutralises much of that benefit. Alternative structures, such as direct corporate or partnership carry vehicles, warrant fresh modelling.
• Buyer due diligence on trust structures. Acquirers of businesses held through trusts should add specific diligence items: review the trust deed, confirm beneficiary entitlements, assess exposure to the minimum tax on any pre-completion distributions, and obtain a seller warranty that no distributions have been made in breach of the new rules.

5. Pillar Two Australia, Cross-Border Deals and Financing Implications

Australia’s commitment to implementing OECD Pillar Two global minimum tax rules adds a further dimension to M&A deal structuring for transactions involving multinational groups. Treasury media releases confirm the Government’s intention to legislate a QDMTT and an IIR, consistent with the GloBE Model Rules, targeting multinational enterprises with consolidated revenue of EUR 750 million or more. While the precise commencement date remains subject to the passage of exposure draft legislation, deal teams should treat Pillar Two as a live risk factor for any cross-border transaction involving an in-scope group.

Financing and Covenant Impacts

Pillar Two implementation in Australia will affect financing arrangements in several ways:

• Tax gross-up clauses. Loan agreements and bond indentures typically include gross-up obligations if withholding taxes increase. A QDMTT top-up tax may not technically be a withholding tax, but borrowers should confirm whether their existing gross-up clauses are drafted broadly enough to capture it, or negotiate carve-outs.
• Debt capacity modelling. If Pillar Two increases the effective tax rate on Australian operations, cash available for debt service may decrease. Lenders and sponsors should model the impact on interest coverage ratios and leverage covenants.
• Change-of-control provisions. Acquisitions that bring an Australian target into a multinational group above the EUR 750 million revenue threshold may trigger Pillar Two obligations that did not exist pre-completion.

Tax Due Diligence Additions for Cross-Border Targets

For acquisitions of cross-border targets, the tax due diligence checklist should now include:

• GloBE information return readiness. Assess whether the target has systems capable of producing the data required for GloBE calculations, including jurisdiction-level effective tax rate computations.
• QDMTT exposure assessment. Model whether Australian operations would be subject to a top-up tax based on current effective tax rates, taking into account available safe harbour provisions.
• Interaction with existing tax incentives. R&D tax incentives, investment allowances and other concessions may reduce the jurisdictional effective tax rate below 15 per cent, triggering a QDMTT top-up. Identify and quantify this exposure.

6. Practical Tax Due Diligence Checklist and Drafting Playbook

The following checklist consolidates the key diligence items arising from the Budget 2026 corporate tax changes Australia deal teams must now address. It is designed to be used alongside standard M&A tax due diligence procedures.

Drafting Playbook, Sample Clause Concepts

The following clause concepts should be adapted to the specific transaction and incorporated into sale documentation:

• Tax warranty (seller). “The Seller warrants that all capital gains tax obligations arising from the Transaction have been calculated in accordance with [the Income Tax Assessment Act 1997 as amended by the Budget 2026 CGT reforms], including the application of cost base indexation and the 30 per cent minimum tax rate, and that no additional tax liability will arise in respect of the Seller’s gain on the Sale Shares.”
• Tax indemnity (scope). “The Seller indemnifies the Buyer against any loss arising from: (a) any CGT liability of the Target or its shareholders calculated otherwise than in accordance with the new indexation regime; (b) any minimum tax liability arising under the discretionary trust minimum tax provisions in respect of distributions made prior to Completion.”
• Escrow release trigger. “The Escrow Amount shall be released to the Seller upon the earlier of: (a) receipt of a final ATO notice of assessment confirming the Seller’s capital gains tax position; or (b) the expiry of [four] years from the date of lodgement of the Seller’s income tax return for the financial year in which Completion occurs.”
• Tax covenant (ongoing). “The Seller covenants to lodge all tax returns and respond to all ATO enquiries in connection with the Transaction in a timely manner and to provide the Buyer with copies of all correspondence with the ATO relating to the tax treatment of the Transaction.”

7. Post-Completion Tax Risk Management, Warranties and Indemnities

Post-completion, the buyer’s exposure to residual tax risk from the Budget 2026 reforms centres on three areas: CGT cost-base disputes with the ATO, crystallisation of trust minimum tax on pre-completion distributions, and Pillar Two top-up tax assessments. Best practice for managing these risks includes sizing the tax warranty cap at no less than the aggregate of modelled CGT and trust minimum tax exposures (typically 15–25 per cent of enterprise value for trust-held targets), setting warranty survival periods of at least four years to align with the standard ATO amendment period, and including a materiality threshold low enough to capture individual trust distribution exposures.

Escrow pools should be sized by reference to the worked tax exposure calculations performed during diligence, with staged release linked to ATO assessment milestones.

Sources

1. Budget 2026, Tax Reform
2. Budget Factsheet, Minimum Tax on Discretionary Trusts
3. Australian Taxation Office, Company Tax Rate Changes
4. ATO, Tax Reform: Minimum Tax on Discretionary Trusts
5. Treasury, Minister Media Release: Corporate Tax Crackdown
6. PwC Tax Summaries, Australia Corporate Tax
7. PwC Tax Summaries, Australia Significant Developments
8. Corrs Chambers Westgarth, Federal Budget 2026–27 Corporate Tax Measures
9. Productivity Commission, Company Tax Reform