Ray White Group Head of Research, Vanessa Rader, has highlighted how the proposed changes, set to take effect from July 2025, would introduce taxation on unrealised capital gains for the first time in Australia’s superannuation environment.
“The proposal aims to double the tax rate from 15 per cent to 30 per cent on earnings, including unrealised capital gains, for superannuation balances exceeding the $3 million threshold,” Ms Rader said.
“This marks a significant shift from previous superannuation reforms that focused on contribution caps or realised earnings.”
Ms Rader said that residential property investments within SMSFs face unique challenges under the proposed tax regime compared to other asset classes.
“When a property experiences significant capital appreciation on paper, the resulting tax liability would require cash payment even though no actual sale has occurred,” she said.
“Unlike shareholders who can sell a portion of their holdings to cover tax obligations, property is indivisible, creating potential liquidity crises for SMSF trustees.”
“An SMSF with a $2.5 million residential investment property that appreciates to $3.5 million would trigger tax obligations on the unrealised portion of the gain that exceeds the threshold.
“Without adequate cash reserves, trustees might be forced to sell the entire property or seek alternative funding sources to meet these obligations.”
The proposed changes could have broader implications for Australia’s residential property market, according to Ms Rader.
“Residential properties held within SMSFs already operate under strict regulatory constraints,” she said.
“These assets cannot be rented to or occupied by fund members or their relatives, cannot be improved using borrowed funds under limited recourse borrowing arrangements, and must satisfy the sole purpose test of providing retirement benefits to members.”
Ms Rader said that these existing restrictions, combined with the new tax implications, could significantly reduce the attractiveness of residential property as an SMSF investment vehicle.
“This could lead to broader market implications such as potential listing supply increases and a shrinking pool of rental properties if SMSF trustees reconsider their investment strategies or restructure their portfolios before the implementation date,” she said.
The research suggests several structural shifts may occur in residential property investment patterns as a result of the tax change.
“We could see a reduction in SMSF residential property holdings, particularly for those approaching the $3 million threshold,” Ms Rader said.
“There may also be increased preference for commercial properties that might deliver stronger income yields relative to capital growth, movement of assets into alternative tax-efficient structures outside superannuation, and potential migration of property investment capital into primary residences, which remain tax-exempt.”
Ms Rader said that the policy could have lasting effects on property valuations in specific market segments.
“Properties typically favoured by SMSF investors are often in the middle to upper price brackets in metropolitan areas and might experience pricing adjustments as demand from this investor class diminishes,” she said.
She said that while the government has presented these changes as affecting only a small percentage of superannuation accounts currently, the impact could grow significantly over time.
“The absence of indexation for the $3 million threshold means an expanding portion of retirement savers will likely be impacted over time as asset values grow,” Ms Rader said.
“For residential property investors using SMSFs, these changes represent a significant shift in the investment landscape, potentially altering the risk-return calculations that have traditionally made residential real estate an attractive component of retirement portfolios.”
