Budget changes could drive SMSF adoption: FAAA

The Financial Advice Association Australia (FAAA) has warned the government's proposed capitals gains tax (CGT) and negative gearing reforms could unintentionally drive Australians towards self-managed super funds (SMSFs) as a vehicle for residential property investment, exposing consumers to heightened risks.

In its submission to the Senate Economics Legislation Committee's inquiry into the Treasury Laws Amendment (Tax Reform No. 1.) Bill 2026, the FAAA said the decision to leave superannuation untouched by the reforms has created a significant tax advantage for investing in established residential property through SMSFs.

The association said the shift could encourage aggressive marketing by property promoters targeting Australians who may not fully understand the responsibilities and risks associated with running an SMSF.

"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 the risks involved with such strategies," FAAA chief executive Sarah Abood said.

Abood warned the carve-out for superannuation could become "the next sphere of extreme consumer risk", noting an increase in social media advertising promoting SMSF property investment since the Budget announcement.

To address the issue, the FAAA called for stronger consumer protections, including mandatory education before establishing an SMSF, tighter restrictions on limited recourse borrowing arrangements, a ban on SMSFs investing in property development, limits on property-related SMSF advertising and stronger diversification guidance.

Abood also raised concerns about the design of the proposed CGT reforms, arguing they would reduce taxpayer choice and increase complexity through transitional arrangements requiring assets to be valued as of 1 July 2027.

"We have major concerns about the changes to capital gains tax. We believe it should be better targeted and not involve such high level of complexity," Abood said.

While broadly supporting the proposed Working Australians Tax Offset and standard deduction for work related expenses, the FAAA urged the government to provide greater certainty around the operation of the reforms and reconsider the proposed 30% minimum tax rate on capital gains.