How controversial changes to super taxes could reduce the borrowing power of older Australians – realestate.com.au

Australia’s property landscape could be turned upside down as controversial changes to the federal government’s pension tax loom, with experts flagging potential ripple effects for investors and borrowers alike.

From July 1, 2026, a new bill will see pension income on balances over $3 million taxed at a higher rate, a move that could subtly but significantly change investment strategies, especially for those with self-managed super funds that hold real estate.

While the changes are aimed directly at high value super balance sheets, the real estate sector is preparing for flow-on effects.

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Money.com.aus Finance and mortgage expert Alex Dore highlights that for some investors in self-managed super funds, higher tax on realized investment returns – including rent and capital gains within super funds – could make holding property outside their super fund more attractive.

“For Australians with high-value super balances – often held in self-managed super funds – the changes increase tax on realized investment income within super, including interest, dividends, rent and realized capital gains, meaning a greater share of returns goes to tax,” he explained.

This shift in tax efficiency could reduce the incentive for individuals approaching retirement to sell investment properties and move the proceeds into super if their balance rises above the $3 million threshold.

“For some SMSF investors, this could make holding properties for longer more attractive, with potential flow-on effects on housing supply at the margin,” Mr Dore noted.

The proposed legislation would see pension income on balances over $3 million taxed at 30 percent, up from 15 percent, impacting about 90,000 people.

For balances above $10 million, the income tax rate will increase to 40 percent.

These thresholds will be indexed and the tax will only apply to realized profits, addressing a major point of contention from the original proposal.

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Alex Dore, Money.com.au’s finance and mortgage expert

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Treasurer Jim Chalmers said the changes aim to make pension tax breaks “fairer and more sustainable”.

In addition to investment decisions, tax reforms may also subtly affect the borrowing capacity of a specific cohort of older Australians.

Mr Dore suggests that if banks take a more conservative approach to assessing super income in response to these higher taxes, this could “somewhat reduce borrowing capacity for that cohort” already drawing income from their super-to-service loans.

Meanwhile, changes to the Low Income Superannuation Tax Offset will boost retirement savings for lower-income Australians, with the threshold increasing from $37,000 to $45,000 from July 1, 2027.

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Treasurer Jim Chalmers said the bill would make pension tax breaks “fairer and more sustainable”.

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However, Mr Dore believes these changes will have virtually no impact on property buyers in this demographic.

“These tend to be younger, lower-income workers who are not yet at a stage of life where super can be used as income, so it doesn’t play a role at all in home loan repayments,” he said.

Consultation on the bill is open until January 16, 2026, with the government aiming to introduce the legislation “as soon as possible in 2026”.