The Albanese Government is on the cusp of passing a highly controversial tax reform package that will fundamentally alter Australia’s housing market dynamics, after striking a deal with the Australian Greens to clear a critical parliamentary hurdle in the Senate.
The agreement guarantees the passage of the first tranche of the legislation within the fortnight, paving the way for sweeping changes to Capital Gains Tax (CGT) settings and negative gearing arrangements.
The tax changes had already drawn fierce criticism from the real estate and property investment sectors, who argue the changes will penalise investors and ultimately choke rental supply.
The Prime Minister, Treasurer, and Finance Minister framed the package as an essential victory for the economy, stating, “these reforms will make it easier for Australians to buy their first home”, cut taxes for over 13 million workers, and better align the tax treatment of labour and asset income.
With the Greens locking in their votes, the government challenged the remaining members of Parliament to pass the bill.
“It is now a question for the rest of the Parliament whether they will get on board with tax cuts for workers and a fairer tax system for first home buyers.”
In their joint statement, the Labor leadership took direct aim at the opposition parties, escalating the political rhetoric ahead of the Senate vote.
“The three right wing parties voted against these tax cuts and in favour of big tax breaks for property investors in the House, and now they’re planning to vote the same way in the Senate which will mean voting against tax concessions for small businesses as well.”
The Coalition and minor right-wing parties have strongly rejected this characterisation, pledging to fight the bill in the Senate and labelling it a tax hike on aspirational Australians.
The SMSF borrowing clampdown
The property sector is particularly alarmed by a major policy concession handed to the Greens to secure the deal: a complete ban on future Limited Recourse Borrowing Arrangements (LRBAs) for residential properties within Self-Managed Super Funds (SMSFs).
This mechanism previously allowed SMSFs to use leverage to purchase investment properties.
Defending the decision to curb this leverage to get the bill across the finish line, the government invoked the ideological legacy of the retirement system.
“Labor built superannuation and we’ll always look to make it stronger and fairer, and agreeing to these changes will reduce the risks to retirement savings while also securing passage of these important reforms to make the tax system fairer.”
The government also sought to downplay the direct property market impact of the borrowing ban.
“These arrangements constitute less than 1 per cent of total residential property borrowing and less than half a per cent of new residential borrowing each year.”
Market realities
Industry analysts warn that despite the government’s downplaying, the combined psychological and financial impact of tighter CGT settings, negative gearing curbs, and the SMSF leverage ban could trigger major market shifts:
- Cooling Auction Markets: Reduced structural tax advantages are expected to soften demand, particularly in higher-value, investment-grade housing segments where leveraged investors traditionally play a dominant role.
- Rental Supply Pressures: Property bodies argue that targeting landlords risks driving capital out of residential real estate, potentially worsening an already severe national rental crisis.
To mitigate wider economic anxiety and pushback from the business community, the government pointed to protective measures embedded in the Bill.
“Government amendments to the legislation will mean all 2.7 million active small businesses and 98 per cent of all active businesses will be eligible for generous Capital Gains Tax (CGT) concessions.”
The timeline ahead
To prevent immediate market disruption or forced asset sales, the legislation relies on grandfathering provisions. The government explicitly confirmed that:
“These changes don’t in any way change the tax arrangements for superannuation, don’t impact any existing SMSF borrowing arrangements and provide time to finalise arrangements that are in train.”
With the numbers locked in, the core tax changes are scheduled to be codified this month.
“Passage of this important legislation this fortnight will provide workers, businesses and investors certainty about the core tax settings that will apply from 1 July 2027.”