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.
Ray White Group executive Thomas McGlynn said the Greens’ support for the reforms came as little surprise, but questioned whether the package would do anything to address Australia’s underlying housing shortage.
“The Greens supporting these reforms was the worst kept secret in Canberra,” Mr McGlynn said.
“The big question is whether changing tax policy creates more homes. Housing affordability is ultimately a supply issue, and history shows it’s very difficult to tax your way to more housing,” he said.
“The Greens supporting these changes was hardly a surprise. They’ve been advocating for reforms to negative gearing and capital gains tax for years. I’m yet to see compelling evidence that changing tax settings alone will solve a supply-constrained housing market.”
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.”
The Property Investment Professionals of Australia (PIPA) has warned the changes will strip SMSF investors of a key pathway to build long-term wealth through property.
PIPA chair Cate Bakos said SMSF borrowing has traditionally been used by households who are unable to take on additional debt in their personal names.
“Investors – including families with strong SMSF balances and high household expenses – have often turned to SMSFs when their ability to sustain an additional mortgage has been restrictive,” she said.
“These investors will miss out on this opportunity to build future wealth within their respective superannuation funds.”
Ms Bakos said the policy runs counter to the original intent of Australia’s superannuation system.
“Ultimately, superannuation was always meant to enable Australians to retire with a better financial outlook than that of the old age pension,” she said. “Our government’s willingness to trim the wings of those who are working hard to safely grow their wealth within an SMSF vehicle is disappointing.”
She said superannuation was designed to reduce pressure on the Age Pension and encourage self-funded retirement outcomes.
“Australian superannuation was introduced to ensure all workers build personal savings for retirement, relieve financial pressure on the publicly funded Age Pension, and boost national savings,” Ms Bakos said. “It was designed to make retirement self-funded and dignified for the entire workforce.”
She warned the changes would reduce diversification opportunities within SMSFs.
“Given that most self-managed superannuation balances are insufficient to purchase property outright, a limited recourse borrowing arrangement is often the only option for a fund to invest in direct property.”
Ms Bakos also noted that SMSF lending has always been tightly regulated since its introduction in 2008 and questioned the policy given its tiny share of the market.
“It also represents a very small percentage, about one per cent, of the overall residential market, so this indeed feels like a strange demand from the Greens to secure their support for the reforms.
“And it’s a surprising concession from the Labor Government, given that the Federal Treasurer was emphatic that SMSF lending arrangements for residential property would remain unchanged in the lead up to today’s announcement.”
REBAA vice president Zoran Solano was in agreement and said policy attention should remain focused on supply-side pressures rather than limiting a relatively small investor segment.
“Consumer confidence shifted almost overnight following the Federal Budget announcements,” he said. “While the market is still working through the full economic impacts, investor sentiment has already changed significantly.”
Before introducing further restrictions, he said policymakers should allow time for the market to absorb the changes already announced and assess their real-world impact.
“If SMSF residential property is such a small percentage of the market, the real question is why we’re focusing on a fraction of the system while housing supply challenges remain unresolved.”
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.”