Do you pay capital gains in a SMSF?
Yes, an SMSF pays Capital Gains Tax just like any other taxpayer and like industry or retail funds do. This is payable as part of the annual SMSF Tax Return as a capital gain is merely the profit on the realisation of a fund investment.
However, if 100% of your self-managed super fund (SMSF) is in pension phase or your fund has carried forward capital losses than capital gains tax (CGT) can be reduced or possibly eliminated.
Capital gains in a super fund are taxed at 15% and if your SMSF owned the asset longer than 12 months a discount of 1/3 is applied before calculating the capital gain.
A SMSF could elect to apply a one-off cost base adjustment made in relation to the introduction of the “Transfer Balance Cap” (refer below) on 1 July 2017. A SMSF could pay CGT on the notional capital gain at that time or elect to defer CGT until the asset was actually sold.
Transfer Balance Cap (TBC) is the maximum amount a member can have in pension mode.
Let’s look at some examples
Jack has a SMSF which owns a residential unit which the fund purchased in July 2020 for $450,000. It is leased to James who is not a related party of Jack’s SMSF. Jack’s SMSF sold the property in December 2023 for $750,000. After considering the selling costs of $19,200 the profit received was $280,800. The fund has carried forward capital losses of $30,000 which reduces the capital gain to $250,800. After applying the 1/3 discount as the property was held longer than 12 months the net taxable gain is $167,200.
Tax on the capital gain is:15% x $167,200 = $25,080
The same facts as example 1 except the SMSF is in pension mode and the actuary certified that 76% of the fund’s income (except for contributions) is exempt current pension income (ECPI) which is tax free.
| Capital gain | $280,800 |
| Less: c/frwd capital losses | ( 30,000) |
| $250,800 | |
| 1/3 discount | ( 83,600) |
| $167,200 | |
| ECPI | 76% |
| ( 127,072) | |
| Taxable capital gain | 40,128 |
| Tax at 15% | $6,019 |
Example 3
The same facts as example 1except the fund is in 100% pension mode.
The capital gain is $167,200. The capital gain is disregarded. The carried forward capital losses are not reduced, and the $30,000 capital loss continues to be carried forward.
The fund pays nil tax on the capital gain.
Example 4
Jan has a SMSF which owns a residential unit which was purchased in July 2010. The fund acquired it for $800,000. The cost base was reset on 30 June 2017 to $1,000,000 in accordance with the “CGT relief” measures when the TBC was introduced. The fund elected to defer the notional capital gain of $30,000 until the property is sold. The property was sold for $1,250,000 in July 2024. The SMSF has carried forward capital losses of $30,000. The SMSF is in pension mode and the actuary certified that 76% of the fund’s income (except for contributions) is ECPI which is tax free.
| Capital gain | $250,000 |
| Less: c/frwd capital losses | ( 30,000) |
| $220,000 | |
| 1/3 discount | ( 73,300) |
| $146,667 | |
| ECPI | 76% |
| ( 111,467) | |
| Taxable capital gain | $35,200 |
| Add: Deferred capital gain | $30,000 |
| Total taxable capital gain | $65,200 |
| Tax at 15% | $9,780 |
To Recap
- A SMSF is subject to Capital Gains Tax like any other superannuation fund
- A discount of 1/3 is available on assets held longer than 12 months
- Capital gain is disregarded if the fund is in 100% pension mode
- Taxable capital gains are reduced by the ECPI
- Offset carried forward capital losses against capital gains