Self-managed superannuation funds (SMSFs) are back in focus, with new data showing a sharp surge in activity at the start of FY26, and looming tax changes may be a key reason why.
According to Class Super’s 2026 Half-Year Benchmark Report, nearly 14,500 new SMSFs were established in the first quarter of FY26 alone, the highest quarterly figure since tracking began in 2012. Over the full 2025 financial year, more than 42,000 new funds were created.
While SMSFs have always appealed to investors seeking greater control, the timing of this spike is notable. With potential capital gains tax (CGT) reform on the table ahead of the May federal budget, many investors appear to be reassessing how and where they hold assets, particularly investment property.
Disclaimer: This article provides general information only and should not be considered financial or tax advice. Investors should get independent guidance from a qualified tax professional when making financial decisions.
Treasurer Jim Chalmers has confirmed there will be tax changes in the 12 May budget. While no final decision has been announced, Treasury is widely reported to be modelling a reduction in the personal CGT discount from its current 50% to somewhere between 25% and 33%.
For property investors holding assets in their personal name, that change could be significant. Currently, individuals who hold an investment property for more than 12 months receive a 50% CGT discount, meaning only half the gain is added to their taxable income. For high-income earners, that can still result in an effective tax rate of up to around 23.5% on the gain.
Inside an SMSF, the current rules are different.
This difference becomes more significant if policy settings change. If the government reduces the CGT discount for individuals – for example, from 50% to 25% – the effective tax rate outside super rises materially. Meanwhile, the SMSF rate remains unchanged.
For property investors thinking long term, that creates a widening gap. In simple terms, if you don’t need access to the asset in the short term, holding property within super can act as a hedge against future tax changes. The rules inside super tend to be more stable, particularly when it comes to capital gains. However, tax efficiency alone doesn’t make an SMSF the right structure for every investor.
While the tax treatment can be attractive, SMSF property investment comes with strict rules. An SMSF can purchase residential investment property, but only for the purpose of generating retirement benefits. The sole purpose test is enforced firmly by the Australian Taxation Office (ATO), and the rules are strict: no member or related party can live in, holiday in or derive any personal benefit from a residential property held by the fund.
Borrowing to purchase property is allowed through a limited recourse borrowing arrangement (LRBA). Under this structure, the property is held in a separate bare trust until the loan is repaid, and the lender’s recourse is limited to that asset, protecting the rest of the fund’s assets.
Lending for SMSFs can be more conservative than standard home loans, often requiring larger deposits and higher buffers. SMSF lending is a specialist product and not all lenders offer it, which makes getting the right advice particularly important.
Beyond the CGT advantage, SMSF property investment offers genuine appeal for the right investor. Rental income inside the fund is taxed at just 15%, compared to a marginal rate of up to 45% outside super. The fund structure also offers estate planning advantages and a degree of asset protection that personal ownership does not.
The structure encourages a long-term investment mindset, aligned with retirement goals. There can also be greater control over investment decisions, allowing investors to directly select and manage property assets rather than relying on pooled funds.
But there are also some trade-offs to understand. Running an SMSF comes with annual costs for accounting, administration and the mandatory independent audit. Those costs need to be justified by the tax savings.
Concentration risk is also a genuine consideration. A single investment property can easily represent the majority of a fund’s assets, concentrating risk in one market, one tenant and one income stream. Liquidity is limited. Unlike shares, a property cannot be partially sold to meet a pension payment or unexpected expense.
There are also new policy considerations. Property investors with a total super balance above $3 million also need to be aware of Division 296, which passed parliament in March 2026 and takes effect from 1 July. It introduces an additional 15% tax on super earnings for balances above that threshold, including unrealised property gains.
The recent spike in SMSF setups is a reminder that property investors are paying close attention to both market conditions and policy signals. However, structuring decisions shouldn’t be driven by tax changes alone.
While potential CGT reform may make SMSFs more attractive on paper, the right approach depends on your broader financial position, including income, time horizon, risk tolerance and retirement objectives.
For some investors, holding property inside super will make sense. For others, flexibility and access outside super will remain more valuable.
If you are considering purchasing property through your SMSF, the first step is understanding your borrowing position. Call Shore Financial on 1300 416 700, email info@shorefinancial.com.au or fill in this online form to get started.
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