Australian Labor Government Bans SMSF Borrowing for Residential Property

The Labor government has amended superannuation law to prohibit self-managed super funds (SMSFs) from borrowing to purchase residential property. The amendment, part of a tax reform package that also changes capital gains tax and negative gearing, takes effect 45 days after royal assent, applies only to new investments, leaves existing arrangements unchanged, and is projected to raise about $50 million over four years.

The Guardian

Super borrowing was barred in 1993. The 2007 Howard government introduced limited-recourse borrowing arrangements (LRBAs) that let SMSFs leverage residential purchases. A 2014 Murray report advised scrapping LRBAs due to systemic risk. Labor’s amendment restores the original restriction, limiting borrowing to commercial property, and secured Greens support; Treasury Minister Jim Chalmers and Greens spokesperson Nick McKim framed it as closing a loophole, while former Commonwealth Bank head David Murray endorsed the ban.

The Guardian

• 1.2 million members in 673 000 SMSFs hold $63 bn in housing (?6 % of $1 tn SMSF assets).

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• SMSF borrowing is <1 % of total residential borrowing and <0.5 % of new residential borrowing each year.

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• The amendment is expected to raise $50 million over four years.

The Guardian

Treasurer Jim Chalmers argued the reform affects only a minimal segment of the housing market and that SMSFs represent a tiny fraction of residential borrowing. He described the amendment as a pragmatic solution given the Senate’s lack of a clear majority. Greens spokesperson Nick McKim praised the closure of the borrowing loophole. Although he often critiques Labor, former Commonwealth Bank head David Murray supported the ban, emphasizing the importance of preventing additional risk in the superannuation and broader financial systems.

The Guardian

The SMSF sector and property-sale firms said the ban harms property investors, arguing it limits retirees’ options and could reduce housing-market liquidity, potentially worsening affordability.

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• “This is a very small part of the housing market.” — Jim Chalmers, Treasurer

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

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• “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.” — David Murray, former Commonwealth Bank head

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• “Prevent the unnecessary buildup of risk in the superannuation system and the financial system more broadly.” — 2014 Murray Report

The Guardian

The ban applies to new SMSF investments from 45 days after royal assent, with enforcement from 1 July 2026. The broader tax reforms have cleared the Senate, and additional budget measures—minimum-wage rises, payday-super changes, and parental-leave tweaks—are slated for 2026-27. Authorities will monitor compliance and any impact on housing-market dynamics.

The Guardian