Federal Budget 2026 tax reforms: Impacts across the private equity and venture capital lifecycle

The 2026 Federal Budget introduces a suite of tax reforms that are expected impact Australia’s private equity (PE) and venture capital (VC) market. Many of the announced measures affect key stages of the PE and VC investment lifecycle, including fundraising and capital structuring, transaction activity, and the performance and exit readiness of portfolio companies.

This article outlines the key Federal Budget measures most relevant to PE and VC professionals, highlights where impacts are likely to be high, medium or low, and identifies focus areas to manage opportunities and risks as further legislative detail emerges.

For detailed technical commentary on each measure, refer to BDO’s Federal Budget analysis.

How Federal Budget 2026 affects PE and VC fund structuring and capital raising

Several announced measures are expected to influence how funds are structured and how capital is raised, particularly where investor profiles differ between domestic and foreign limited partners:

• 30 per cent discretionary trust tax from 1 July 2028, combined with the loss of the CGT discount and the non-refundable tax credit for the discretionary trust, the utility of a discretionary trust for wealth and estate planning is significantly diminished. GPs which require flexibility in housing carry arrangements may need to consider trading off flexibility by moving carried interest entitlements to fixed trusts
• The repeal of the capital gains tax (CGT) discount for all CGT assets, alongside the introduction of cost base indexation from 1 July 2027, is likely to reduce after‑tax returns for domestic investors. Fund structures designed to maintain fiscal transparency remain relevant for funds with foreign limited partners investing in assets that are not taxable Australian property. However, domestic investors may require higher return profiles, potentially encouraging general partners to consider investments that deliver income yields during the investment term rather than relying solely on exit outcomes
• The introduction of a 30 per cent minimum tax on net capital gains from 1 July 2027 adds another layer of complexity. How this measure will apply to commonly used fiscally transparent structures, such as venture capital limited partnerships, managed investment trusts and superannuation vehicles taxed at concessional rates, remains unclear. Further legislative guidance will be critical to provide certainty for future fundraising
• Other measures, including the extension of loss carry‑back rules from 1 July 2026 and increases to asset size thresholds and fund size limits for VCLPs and ESVCLPs from 1 July 2027, may support enhanced after‑tax internal rates of return and broaden the universe of investible opportunities. These changes may also result in larger funds and larger transactions, although mandates and investor expectations will need careful review.

Implications for M&A activity and transaction timing

The Budget measures are expected to influence transaction activity, particularly in the lead‑up to announced commencement dates:

• The removal of the CGT discount, combined with the introduction of cost base indexation and a minimum capital gains tax, represents a substantial change to the tax profile of domestic vendors. As a result, sale processes may be accelerated to occur before 1 July 2027, creating near‑term acquisition opportunities for PE funds. Pre‑CGT assets becoming subject to CGT from 1 July 2027 may also prompt long‑held private groups to consider disposals, often referred to as the ‘silver wave’. This dynamic may create favourable conditions for secondary buyouts and platform acquisitions.
• From a deal execution perspective, loss carry‑back rules may increase the value of targets with prior year frankable profits and current tax losses. Completion mechanics that capture refundable offsets could be value‑accretive but will require careful modelling. In addition, tax due diligence will need to focus on assets that have been subject to instant asset write‑off rules, as tax cost base resets may not be available post‑acquisition.

Impact on portfolio companies

For many PE‑owned portfolio companies, several measures are expected to be broadly benign, particularly where corporate tax settings remain unchanged:

• Management incentive planning may become more complex due to the loss of the CGT discount for individuals, requiring a reassessment of equity‑based incentive arrangements for key personnel
• The extension of loss carry‑back rules may enhance cash flow for scaling businesses, potentially accelerating investment and hiring decisions. Small start‑up portfolio companies may benefit further from proposed loss refundability from 1 July 2028, subject to eligibility thresholds
• Reforms to the Research & Development Tax Incentive (RDTI) from 1 July 2028 could materially affect portfolio companies with innovation‑led or deep‑tech strategies. Existing and prospective claims will need to be assessed against revised eligibility criteria once legislative detail is released
• Global measures, such as the introduction of the Global Anti‑Base Erosion (BEPS Pillar Two) Side‑by‑Side Package, are expected to reduce compliance complexity for groups with international operations and should be largely benign for both funds and portfolio companies.

Key focus areas for PE and VC professionals

Following the Budget, PE and VC professionals should consider the following priority actions:

If you manage portfolio companies:

• Review opportunities to benefit from revised R&D tax incentives and loss carry‑back rules
• Assess the impact of CGT changes on management equity plans
• Test eligibility for instant asset write‑off concessions.

If you are executing transactions:

• Monitor accelerated vendor activity ahead of CGT and minimum tax commencement dates
• Structure completion mechanics to capture potential loss carry‑back benefits
• Review fund mandates to determine whether larger transactions are now feasible.

If you are raising capital:

• Reassess investor tax profiles and the impact of CGT reforms on return expectations
• Revisit carried interest arrangements for new funds
• Consider whether investment strategies should incorporate income yield during the investment period.

What to watch: pending legislative detail

While the Federal Budget sets out the Government’s policy intent, several measures will require legislation, detailed design and administrative guidance before their full impact can be assessed. Key areas to monitor include:

• The mechanics of the 30 per cent minimum CGT
• The mechanics of 30 per cent discretionary trust tax
• Interactions with concessional investors
• Integrity rules accompanying the proposed reforms.

How BDO can help

BDO’s private equity and venture capital specialists can help you understand how the 2026 Federal Budget measures may affect your fund, transactions or portfolio companies. Contact us to request assistance from our team, or find out more about our services for private equity.