Framed around “resilience and reform,” the recent Federal Budget introduces several measures relevant to VMG Capital’s mid-market clients. While some initiatives specifically target the smaller end of the SME spectrum, the most significant policy shifts will meaningfully impact larger mid-market enterprises. The businesses positioned to benefit most will not be those reacting at year-end, but those that actively integrate these new policy tools into their strategic and financial planning today.
The most broadly applicable change is the reintroduction of corporate loss carry-back for the 2026-27 financial year. Under this measure, companies recording a tax loss can offset it against tax paid in the prior two income years to trigger an immediate cash refund, rather than carrying the benefit forward indefinitely. This materially improves the after-tax economics of a loss year, whether it is driven by an intensive capital expenditure cycle, business restructuring, acquisition integration costs, or a cyclical downturn. Potential loss positions should therefore be modelled well in advance rather than treated as a standard year-end reconciliation. This liquidity benefit will be reinforced by a more flexible Pay-As-You-Go (PAYG) instalment regime arriving in 2027, which will allow businesses to align tax payments with real-time performance rather than historical data.
Substantial structural shifts are also coming to innovation and growth incentives, altering the funding landscape for mid-market scale-ups. Effective 1st July 2028, the R&D Tax Incentive will be reshaped; the core experimental R&D offset rises by 25% to 50%, the maximum expenditure cap increases to $200 million, and the intensity threshold drops to 1.5%. That threshold is the proportion of a company’s total expenditure that must be spent on R&D to access the higher offset rate, so lowering it means more firms with substantial, though not dominant, R&D programs will qualify for the most generous support. Crucially for growing businesses, the turnover threshold for the higher refundable offset lifts to $50 million, restricted to firms operating less than ten years. Venture capital incentives expand in parallel from 1st July 2027. These regimes reward professional investors with significant tax concessions; broadly, tax-free returns on eligible investments, plus an upfront tax offset for ESVCLP investors, in exchange for backing young, high-growth companies. The Budget nearly doubles the investee asset caps under both the Venture Capital Limited Partnership (VCLP) and Early Stage Venture Capital Limited Partnership (ESVCLP) regimes, and lifts the maximum ESVCLP fund size to $270 million. In practical terms, a company can now grow considerably larger before it ceases to qualify as an eligible investment, so backers can maintain and even increase their exposure through later, larger funding rounds without losing the concessions that make the investment worthwhile. For businesses seeking capital, the effect is a deeper pool of patient, tax-advantaged funding available to growth-stage mid-market companies, not just early-stage start-ups. Founders planning an external capital raise in the next 2-3 years should begin reviewing their group structures and documentation now.
Inbound supply chains also face adjustment. The abolition of 497 “nuisance” tariffs from 1st July 2026 (low-rate duties that raise minimal revenue but impose disproportionate compliance and administrative costs) will lower input costs for businesses with import-exposed supply chains, particularly in the manufacturing, industrial, and distribution sectors. The practical risk is that, where a business buys through an importer or distributor rather than importing directly, the saving is retained by that intermediary as additional margin rather than passed down the chain; what we mean by being “absorbed upstream.” Clients should review supplier contracts and pricing early to ensure the benefit reaches their own cost base rather than stopping with the supplier.
Finally, private and family enterprises operating through trust structures must prepare for a new 30% minimum tax on discretionary trusts taking effect on 1st July 2028. To ease the transition, the Budget provides three years of CGT rollover relief from 1st July 2027, allowing eligible businesses to restructure; for example, from a discretionary trust into a company, without triggering an immediate capital gains tax liability on the assets transferred. This matters for many businesses as the new minimum tax narrows the historical advantage of distributing through a discretionary trust relative to retaining profits in a company taxed at the 25% base rate. For some, a corporate structure is beginning to look the more sensible long-term option, and the rollover relief is the mechanism that makes moving toward one practical, without an upfront tax cost. Clients weighing this should bring structure reviews forward into the next 12-18 months, rather than leaving them to the final stages of the window.
For owners contemplating a future sale, the key message is what the Budget did not change. The four small business CGT concessions; the 15-year exemption, the 50% active asset reduction, the retirement exemption, and rollover relief, remain fully intact and are not subject to any of the new Budget measures. These are available to businesses that meet the small business test: broadly, an aggregated turnover under $2 million or net assets below $6 million. Together they can substantially reduce, defer, or in qualifying cases eliminate the tax on the gain from selling an eligible business. Businesses above those thresholds, however, do not qualify for these concessions, and it is here that the Budget’s CGT change becomes relevant. From 1st July 2027, the general 50% CGT discount that a larger business would otherwise rely on is replaced by a discount based on inflation, alongside a minimum 30% tax on gains. In practice, this can increase the tax payable on the sale of a mid-market business that sits outside the small business thresholds, so owners in this position should model their after-tax outcome under the new settings well ahead of any transaction rather than assuming it is unchanged.
The Budget provides tools, not judgment. The firms positioned to benefit most will not be those who respond to it at year-end, but those who integrate it into their financial and strategic plan from the outset. The clear message for business owners is to engage their accountants and advisers on tax planning now, rather than waiting until year-end to discover what was available.
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