Capital gains tax (CGT) changes proposed in this year’s budget could lead to more high-pressure sales tactics that push people into SMSFs, according to the Financial Advice Association Australia.
The association wrote in a submission to the government’s proposed tax changes that while it welcomes superannuation being exempted from the proposals, it could mean property in SMSFs becomes disproportionately attractive.
“We fear that this may become the next sphere of extreme consumer risk,” the association’s submission, signed by CEO Sarah Abood, said.
The government’s FY27 budget proposed that from 1 July 2027 the 50 per cent CGT discount will be replaced by cost-base indexation for assets held for more than 12 months, with a 30 per cent minimum tax on net capital gains.
Negative gearing will be abolished for new purchases, with an exception for new residential property builds and properties in widely held trusts and superannuation funds being excluded. Existing negatively geared arrangements will be grandfathered.
The proposals are being debated in Parliament this week.
Since the announcement of these reforms, the FAAA has noticed an uplift in advertising on social media suggesting that SMSF property investment is “the new big 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,” the submission said.
The association acknowledged the government was attempting to lift consumer protections to mitigate gaps that were exploited in the $1 billion Shield and First Guardian collapse but noted that those reforms may not sufficiently address this risk.
“We believe that the government needs to carefully consider the consequences of introducing a distortion between investment inside and outside super with respect to residential property, and that further measures are needed to protect Australians being the target of unscrupulous operators promoting investment in property via SMSFs,” the submission said.
“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 new consumer protections proposed by the government include adding restrictions on lead generators, as well as adding “cooling-off” periods for people wanting to switch super funds.
The investments in the Shield and First Guardian funds grew due to a sophisticated network of lead generators that contacted people who used online “superannuation health check” advertisements and applied high-pressure sales tactics to refer them to financial advisers.
ASIC acted against the funds over concerns that investor money was being misused on high-risk investments, pet projects of directors and personal expenses. Court proceedings against both funds are ongoing.
Concerns about similar business models that spruiked the use of real estate in SMSFs have been raised by the profession and regulators, particularly related-party transactions where the promoter of the SMSFs had a business involved in property selling.
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