Have the Budget tax changes and SMSF borrowing reforms strengthened the case for Self-Managed Super Funds?

Prior to the Budget, much of the focus was on whether Division 296 reduced the attractiveness of superannuation – particularly for higher balance members. The more relevant question now is whether the proposed tax reforms outside superannuation have shifted that comparison entirely. 

The comparison investors should be making

Much of the post‑Budget discussion has focused on changes to negative gearing, capital gains tax (CGT) and discretionary trusts. At the same time, Division 296 will commence from 1 July 2026 and introduces an additional layer of tax for individuals with larger superannuation balances. 

Viewed in isolation, it would be easy to conclude that superannuation has become less attractive. 

However, investment structures do not operate in isolation. 

The better comparison is not between the old super rules and the new super rules – it is between how investments will be taxed inside superannuation and outside superannuation going forward. 

Which tax changes are law and which are still proposed?

Importantly, not all of these changes are at the same stage. 

• The Government announced reforms in the 2026–27 Federal Budget 

• Legislation covering the proposed CGT and negative gearing changes was introduced into Parliament on 28 May 2026, but is not yet law 

• The proposed discretionary trust reforms remain a future measure, with further legislative detail still to come 

• Division 296 is different – it is already law and will commence from 1 July 2026 

Broadly, the Budget proposals signal: 

• A tightening of the tax treatment of negatively geared residential property 

• A shift in CGT settings for individuals and trusts, including moving away from the traditional 50% discount 

• A proposed minimum tax framework for discretionary trust income 

These measures are clearly directed at investment structures outside the superannuation environment.  

What Division 296 actually does (and does not do)

Division 296 applies to individuals with total super balances exceeding $3 million, with an additional layer of tax applying to earnings attributable to those balances. 

Importantly, the impact differs depending on the level of balance: 

• For balances between $3 million and $10 million, Division 296 introduces an additional 15% tax on a portion of earnings 

• For balances above $10 million, a further 10% tax applies to the highest tier of earnings, increasing the effective tax rate on that portion 

This distinction matters. 

While Division 296 reduces the concessional nature of super for higher-balance members, it does not eliminate it. 

For many individuals – particularly those with balances below the very large balance threshold (currently $10 million) – superannuation can still represent a comparatively tax-effective environment when measured against alternative structures. 

For those with very large balances (above $10 million), the analysis becomes more nuanced. The incremental tax cost is higher, and there is a greater need to actively consider asset location and structure across the broader wealth group. 

In other words, Division 296 does not create a single outcome — it creates a range of outcomes depending on balance level and investment profile. 

Looking beyond Division 296

The debate is often framed as whether Division 296 reduces the attractiveness of superannuation. 

That is the wrong comparison. 

Investors should instead be asking: 

How will investments be taxed inside superannuation versus outside superannuation going forward? 

For many years, a significant portion of wealth has been accumulated outside super through: 

• Personally held assets 

• Negatively geared property 

• Discretionary trust structures 

The proposed Budget measures directly target several of those strategies. 

Self-Managed Super Funds (SMSF) sit largely outside that reform focus.   

 The question is no longer simply whether superannuation is less attractive, it is how the relative advantages of different structures are shifting. Two of the most commonly referenced Budget measures – changes to CGT and negative gearing – together with the recent changes to SMSF residential property borrowing rules, highlight how the investment landscape is evolving and why structure selection has become increasingly important. 

How is Capital Gains Tax (CGT) different inside an SMSF?

One of the most significant Budget announcements relates to changes to the CGT regime for individuals and trusts, including a move away from the traditional 50% CGT discount toward an alternative framework based on indexation and a minimum effective tax rate – returning to an indexation-based approach not seen for many decades. 

While these proposed changes represent a material shift for assets held outside superannuation, they do not apply to superannuation funds. 

This highlights a key distinction – the proposed reforms reshape how investments are taxed outside super, while the core superannuation tax settings remain unchanged. 

Within an SMSF: 

• Capital gains continue to be taxed under the existing superannuation tax framework 

• Assets held for more than 12 months may still benefit from the one‑third CGT discount 

• The effective tax rate on capital gains can be:  

• 10% in accumulation phase 

• 0% in retirement phase, where the asset supports pension income streams (subject to transfer balance cap limits) 

By contrast, the proposed external reforms are intended to increase the minimum effective tax rate on capital gains for individuals and trusts. 

When viewed on a like‑for‑like basis, the relative position of capital gains realised within superannuation may become more favourable than under the proposed post‑Budget framework outside super. 

This distinction is particularly important for investors with assets expected to generate long-term capital growth, such as property or equities. 

How do the negative gearing changes affect SMSFs? 

The Budget also proposes changes to the tax treatment of negatively geared residential property, including limitations on how losses can be applied and a stronger focus on new housing supply. 

These changes are directed at individual taxpayers and other non-super structures. 

They do not alter how investments are taxed within an SMSF. 

In practice: 

• SMSFs have never relied on negative gearing in the same way as individual investors 

• Deductibility of losses remains subject to existing superannuation tax rules 

• An SMSF investment strategy is generally driven by long-term return and cash flow, rather than short‑term tax offsets 

Importantly, this means that while the Budget proposals may reduce the relative appeal of negatively geared investments held personally, they do not reduce the attractiveness of holding growth assets within superannuation. 

Again, the impact is not that superannuation has changed materially, but that the relative positioning of other structures may have shifted. 

What about the new SMSF borrowing restrictions?

Recent legislative changes have also significantly altered the way SMSFs can invest in residential property. 

Commencing from 10 August 2026, SMSFs can no longer enter into new limited recourse borrowing arrangements (LRBAs) to acquire residential property. Existing arrangements and certain transactions entered into before the commencement date may continue under transitional provisions, while borrowing to acquire business real property (e.g. commercial and industrial) property remains available. 

At first glance, this may appear to weaken the case for SMSFs as an investment vehicle. However, it is important to distinguish between the attractiveness of a particular investment strategy and the attractiveness of the superannuation environment itself. 

The borrowing changes affect how residential property can be acquired within an SMSF. They do not alter the underlying taxation of investments held within superannuation, including the concessional tax treatment of capital gains and investment income. 

For investors who were primarily using SMSFs to leverage into residential property, the strategic landscape has clearly changed. For those focused on long-term capital accumulation through diversified investments such as shares, managed funds, commercial property or direct investment portfolios, the broader tax advantages of superannuation remain largely unchanged. 

In other words, the reduction in borrowing flexibility does not necessarily reduce the attractiveness of superannuation itself. Rather, it changes the range of strategies available within the structure. 

Why the relative value of superannuation may have increased

While Division 296 introduces additional tax for high‑balance members, the broader superannuation system continues to offer: 

• Capped income tax rates in accumulation  

• Potentially tax-free income streams in retirement phase (subject to caps) 

• A relatively stable legislative framework for retirement savings 

When viewed in that context, the relative value of superannuation as a long‑term investment environment may strengthen for some investors. 

This is already something we are working through with clients – particularly those who are comparing where new capital should be deployed and whether future investments are best made through superannuation, trusts, companies or personally following the recent borrowing and tax reforms. 

Should investors move more assets into an SMSF?

None of this means: 

• Every asset belongs in an SMSF, or 

• Tax should be the sole driver of structuring decisions 

Key considerations remain: 

• Access to capital 

• Retirement timing 

• Liquidity requirements 

• Estate and succession planning 

• Flexibility of ownership structures 

For many clients, an SMSF is just one component of a broader family wealth framework. 

How should investors use SMSFs after Division 296?

Division 296 does not change whether SMSFs remain relevant – it changes how they are used. 

For higher balance members – particularly those approaching or exceeding the $10 million threshold – there is now a greater need to consider how assets are allocated across different structures. 

This includes: 

• Which assets are best held within superannuation 

• Which assets may be more appropriately held outside superannuation 

• Whether existing structures are being used for their intended purpose 

The focus shifts from simply accumulating wealth within the most tax‑effective structure to actively managing asset location across a family’s overall balance sheet. 

What questions are investors asking about SMSFs right now?

We are increasingly seeing clients ask: 

• Should future investments be held personally, through a trust, through a company or within superannuation? 

• Does Division 296 change the type of assets best suited to an SMSF? 

• How do the new residential property borrowing restrictions affect my SMSF strategy? 

• Does residential property still belong inside an SMSF if borrowing is no longer available? 

• How should tax outcomes be balanced against flexibility, succession planning and access to capital? 

• Are existing structures still fit for purpose? 

These are the right questions to be asking. 

It’s not SMSF vs trust – it’s how they work together

For many family groups, the answer will not be SMSF versus trust. 

It will be understanding how different structures operate together: 

• SMSFs for long-term retirement capital 

• Trusts and companies for flexibility and pre-retirement access 

• Personal ownership where appropriate based on asset type and objectives 

The strongest structures are rarely built around tax alone. 

They are built around purpose. 

What is the key takeaway for SMSF investors?

The key takeaway from the Budget announcements and Division 296 is not that SMSFs have become less relevant – it is that the comparison investors need to make has changed. 

Nor is it that every investor should be moving more assets into superannuation. 

Rather, it is that the comparison investors need to make has changed. 

Investors should be reassessing the role of superannuation within their broader wealth strategy — and comparing future outcomes both inside and outside superannuation. 

In an environment where tax changes are increasingly directed at investments held outside super, the relative value of SMSFs may be stronger than many initially assume. 

What should you do next

If you are considering changes to your structure or investment strategy as a result of the Budget announcements or Division 296, we recommend obtaining advice before taking action. 

The most effective structures are rarely reactive – they are built with a clear long‑term objective. 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to your circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.