The Australian government has legislated significant reforms to capital gains tax and negative gearing after securing support from the Greens. To finalize the deal, the Labor government agreed to ban self-managed super funds (SMSFs) from borrowing to invest in residential property. The tax reform bill, which also includes additional income tax relief, passed the Senate on Thursday afternoon.
How the new superannuation ban works
The government’s decision prohibits SMSFs from using borrowed money to purchase residential real estate. According to Treasurer Jim Chalmers, the new rules will not affect existing arrangements and will apply only to new investments made 45 days after the amendments receive royal assent. The measure is expected to raise approximately $50 million over the next four financial years. While borrowing for residential property is being restricted, SMSFs will retain the ability to borrow for commercial real estate investments, a common practice for small business owners housing their operations within their superannuation.
Did You Know? The original 1993 superannuation legislation banned funds from borrowing to invest due to perceived risks, before a 2007 exception introduced by the Howard government allowed for limited recourse borrowing arrangements (LRBAs).
Why the change to SMSF borrowing matters
The shift follows recommendations from the 2014 Murray report, which argued that banning SMSF borrowing would prevent an unnecessary buildup of risk in the broader financial system. David Murray, former head of the Commonwealth Bank and author of the report, recently stated that a leveraged superannuation system creates risks of “forced selling of assets in a downturn.” While the Coalition has criticized the move as an attack on property investors and a threat to aspiration, the government maintains that SMSFs represent a small fraction of the housing market. Data from the Australian Taxation Office as of March 2026 shows that SMSFs held $63 billion in housing, which accounts for roughly 6% of total SMSF assets but a much smaller portion of the $12.8 trillion residential property market.
Expert Insight: The move to restrict SMSF borrowing represents a fundamental shift in how the government balances retirement policy with housing market pressures. By narrowing the 2007 exception to commercial property only, the government is effectively aligning superannuation objectives more closely with long-term retirement savings rather than wealth accumulation through leveraged residential property speculation.
What happens next for property investors
The immediate impact on the broader housing market is expected to be marginal, according to observations from economic analysts. While the Coalition warns that the change may reduce housing supply by discouraging investors, proponents like the lead author of the 2010 super system report, Jeremy Cooper, argue the policy is a necessary step to curb price pressures. Investors may look to adjust their portfolios ahead of the 45-day window closing, though the prospective nature of the law means existing property holdings remain unaffected. The government’s reliance on the Greens to pass these reforms suggests that further negotiations regarding tax and superannuation policy may continue to be a feature of the current parliamentary term.
Frequently Asked Questions
Will this change affect my current property investment in my SMSF?
No. The government has confirmed that the new rules are prospective and will not affect existing borrowing arrangements.
Can I still borrow to invest in commercial property through my SMSF?
Yes. The amendment specifically narrows the borrowing exception to commercial property, meaning SMSFs can continue to use borrowed funds for these assets.
Why did the government decide to ban this practice?
The decision was part of a deal with the Greens to secure the passage of broader tax reforms. Additionally, the government cited the need to make the superannuation system safer and reduce risks associated with leverage in the financial system.
How do you think these changes to superannuation will influence your long-term investment strategy?