Labor’s tax deal with the Greens will close a superannuation ‘loophole’. What is changing and who is affected?

The government has legislated its changes to capital gains tax and negative gearing, after winning support from the Greens.

Getting the deal over the line involved Labor agreeing to close a relatively obscure “loophole” in superannuation legislation that let funds borrow to invest in housing.

There have been some loud complaints of another attack on property investors, and that “aspiration is under assault” – again.

At the end of another eventful week in parliament, let’s take a closer look at the tweak that helped pave the way for the biggest tax reforms this century.

What changes to superannuation has the Labor government announced?

The government has announced that it will ban self-managed super funds (SMSFs) from borrowing to invest in residential property.

The decision was part of a deal made with the Greens to secure the passage of their tax reform bill – which includes the changes to CGT, negative gearing and some additional income tax relief – through the Senate.

The reforms passed the Senate on Thursday afternoon.

Are SMSF investors a big part of the property market?

There are about 1.2 million people in roughly 673,000 SMSFs as of March 2026, according to Australian Taxation Office data.

They had a combined $63bn invested in housing as of March. That is obviously a lot of money, but it needs to be put in the context of a $12.8tn residential property market. And it’s about 6% of the total $1tn in SMSF assets.

Announcing the proposed changes to superannuation law on Tuesday, Jim Chalmers said “this is a very small part of the housing market”.

“SMSFs, for example, are less than 1% of total residential property borrowing and less than 0.5% of new residential borrowing each year.”

He then went on to say the government was pretty much only doing it to keep the Greens happy – although it has been Labor policy in the past, so was no great hardship.

“This is an important change in its own right, but it also reflects the realities of a Senate where nobody has the numbers on their own. And that’s why we are willing to support these arrangements today,” he said.

So what will actually change for investors?

First off, the new rules will not affect existing arrangements – it will be prospective.

It will apply to any new investments from 45 days after the amendments receive royal assent, and will raise about $50m over the coming four financial years.

SMSFs will still be able to invest in residential property; they just won’t be able to borrow to invest. They can still borrow to invest in commercial real estate, which is often a way for small business people to put their own premises into their super.

A quick history lesson: the original super legislation in 1993 banned funds from borrowing to invest on the basis that it was too risky.

In 2007, the Howard government gave an exception to this rule as long as the fund used what is called a limited recourse borrowing arrangement, or LRBA.

LRBAs quarantine the leveraged investment into a separate trust within the super fund, which means that in the event of a default the lender isn’t able to go after the borrower’s other super assets to recoup its losses.

Theoretically, any fund could have borrowed to buy any asset, but it was self-managed super funds who took up the opportunity to borrow and buy real estate.

The upcoming amendment will narrow the 2007 exception to just commercial property.

So is this a good idea?

Chalmers argues the changes will make the super system safer, and pointed to inquiries and reviews which suggested borrowing wasn’t a great idea in super funds.

The SMSF sector is upset, as are a variety of people who make their money from selling property to SMSFs.

Nick McKim, the Greens’ economic spokesperson, has repeatedly raised the issue of the “loophole” which allowed SMSFs to still negatively gear properties during the recent snap inquiry into the budget tax reforms.

He pointed to a flood of “spruikers” encouraging people to buy homes through their super in the wake of the recent budget, which included the plans to trim investor tax breaks.

The 2014 Murray report into the financial system recommended scrapping the exception that allowed SMSFs to borrow to buy property. It said banning the practice would “prevent the unnecessary buildup of risk in the superannuation system and the financial system more broadly”.

The report also noted a ban would also be in keeping with the objective of super as a way to save for retirement, rather than as a broad way to build wealth.

The author of that report, David Murray, who is also a former head of the Commonwealth Bank, told the Australian Financial Review this week that he usually disagreed with everything Chalmers and the Greens did, but he backed the decision to ban SMSFs’ borrowing to buy homes.

“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,” he told the newspaper.

“It’s leverage [borrowing] that creates forced selling of assets in a downturn.”

Will it make housing cheaper?

Probably at the margin.

The Coalition argues this will be another blow to housing supply, as investors will retreat from the market.

But Jeremy Cooper, the lead author of a 2010 report into the super system, says banning SMSFs from borrowing to invest in homes is a step in the right direction.

Cooper said the collapse in housing affordability since the 2014 Murray report had added another reason to put an end to the practice.

“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,” he said.