Budget increases SMSF risk level

The Financial Advice Association Australia (FAAA) has expressed its concerns certain measures contained in the 2026 federal budget might encourage the increased promotion of SMSFs as the most effective vehicle to use to invest in residential property to the detriment of the Australian public.

The industry body used its feedback to the Senate Economics Committee on the Treasury Laws Amendment (Tax Reform No 1) Bill 2026 to argue the carve-out of superannuation from recent changes to capital gains tax (CGT) and negative gearing, particularly in the context of property assets, creates a significant tax incentive.

In turn, the association noted the policy specifically makes SMSFs a much more favourably taxed vehicle for holding established residential housing and this environment creates a clear opportunity for unscrupulous property operators to actively promote this advantage.

“The carve-out of superannuation from CGT and negative gearing changes creates an opportunity for unscrupulous property spruikers and operators to actively promote this tax advantage to persuade more Australians into investing into property via an SMSF,” the FAAA explained.

According to the professional organisation, a notable uplift in social media advertising has occurred since the budget announcement suggesting SMSF property investment is a new major opportunity.

“While this strategy can be beneficial for consumers, it carries higher risks, including high rates of gearing, very low levels of diversification, illiquidity and risks that the regular payments required to support the strategy might exceed the ability of the consumer to contribute to their super,” it stated.

To address these risks, it suggested further work is needed to identify targeted reforms that would decrease the likelihood of having individuals directed toward inappropriate residential property investments against their best interest.

As such, it has recommended several options the government should consider, including the implementation of higher standards relating to SMSF establishments, placement of restrictions on limited recourse borrowing arrangements, prohibition of SMSFs investing in property developments, imposition of restraints on advertising referring to property investments and SMSFs, and stronger guidance on the importance of portfolio diversification inside a fund.

“While we support Australians having the opportunity to invest in established residential property via the SMSF structure, we are concerned that many of them will be convinced to do so via high-pressure sales tactics without the benefit of financial advice, without a full understanding of the obligations that they are accepting as trustees of a super fund and without appreciating the risks involved with such strategies,” it pointed out.

“We fear that this may become the next sphere of extreme consumer risk. While the government has proposed reforms to superannuation switching (which form part of its response to the Shield and First Guardian collapses), those reforms might not sufficiently address this particular risk.”