The Albanese government has legislated changes to capital gains tax and negative gearing after securing a deal with the Greens, which included closing a superannuation loophole that allowed self-managed super funds (SMSFs) to borrow for residential property investment. The reforms passed the Senate on Thursday afternoon.
What Changes Have Been Announced?
The government will ban SMSFs from borrowing to invest in residential property through limited recourse borrowing arrangements (LRBAs). This rule applies prospectively from 45 days after royal assent and will not affect existing arrangements. SMSFs can still borrow for commercial real estate, often used by small business owners to place their premises in super.
Treasurer Jim Chalmers stated, "This is a very small part of the housing market," noting that SMSFs account for less than 1% of total residential property borrowing and under 0.5% of new annual borrowing. The change is expected to raise about $50 million over four financial years.
How Significant Are SMSF Investments in Housing?
According to Australian Taxation Office data, roughly 1.2 million people in 673,000 SMSFs held a combined $63 billion in housing as of March 2026. While substantial, this represents about 6% of total $1 trillion SMSF assets and a fraction of the $12.8 trillion residential property market.
The decision follows the 2014 Murray Financial System Inquiry, which recommended scrapping the 2007 Howard government exception allowing LRBAs. The inquiry argued that borrowing in super "would prevent the unnecessary buildup of risk in the superannuation system." Former Commonwealth Bank chief David Murray backed the ban, telling the Australian Financial Review, "We already have a highly leveraged banking system and what you don’t want in a systemic event is to have a leveraged superannuation system too."
What Are the Implications for Housing Affordability?
Economists are divided. The Coalition argues the ban will reduce housing supply as investors retreat. However, Jeremy Cooper, lead author of the 2010 super system review, supports the move: "They (SMSFs) are driving up prices. They have plenty of capital and are tax advantaged. It’s skewing the property market and adding extra demand." The government maintains the change makes super safer and aligns with its objective as retirement savings, not wealth-building.
Greens economic spokesperson Nick McKim highlighted that the loophole allowed SMSFs to negatively gear properties, a practice he criticised during the snap inquiry into tax reforms. The new rules take effect later this year.
