What SMSF Tax Rates Apply to CGT in a SMSF?
Tax rates applicable to capital gains tax for SMSFs can range from nil to 45%.
Accumulation Phase
A concessional tax rate of 10 % applies to capital gains made on disposal of assets held for over 12 months, and a tax rate of 15 % for those held for a shorter period in relation to a fund wholly in accumulation phase,
Segregated Pension Mode
Capital gains and losses are entirely disregarded for tax purposes if the SMSF would have made a capital gain or loss but the SMSF is wholly in pension mode (specifically, retirement phase pensions like account-based pensions) for the entire financial year or where a specific asset was segregated to an account-based pension (ABP). Additionally, any direct expenses associated with the segregated assets cannot be claimed as deductible expenses.
Unsegregated Pension Mode
A fund will pay tax on Income generated by assets used to provide retirement phase pensions which are not wholly in pension phase at reduced tax rates which is determined by the percentage of exempt current pension income (ECPI) assessed by an actuary and applied to the fund’s total assessable income, excluding concessional contributions. A portion of the fund expenses are considered non-deductible, and this proportion can be calculated based on the ECPI percentage. Certain specific deductions, such as fees for tax agents, the ATO supervisory levy, or premiums for death and disability insurance, can be fully claimed at 100%.
Collectables & Motor Vehicles
A capital gain or loss realised on the disposal of a collectable asset is disregarded if it was acquired for $500 or less. A capital gain or loss realised on the disposal of a motor vehicle is also disregarded. However, the disregarded capital gains, under certain circumstances, may be taxable on revenue account (refer to your tax agent or accountant).
Capital Losses During the Accumulation Phase vs Pension Phase
During accumulation phase tax may be reduced further as eligible carried-forward capital losses are used to offset capital gains. Additionally, any unused current year capital losses can be carried forward to future years.
Capital losses incurred in the current year in relation to segregated pensions or segregated pension assets cannot be carried forward to future years and are disregarded.
A SMSF with unsegregated pensions can carry forward current year capital losses or offset carried forward capital losses from previous years with current year capital gains.
Does Your SMSF have a Deferred Capital Gain pre-1 July 2017?
Eligible SMSFs could elect a once off CGT relief in relation to unrealised capital gains built up in pension funds, pre-1 July 2017, which would have been partially or wholly exempt from tax. This was compensation as a result of the introduction of the transfer balance cap (maximum a person can have in pension mode) and the loss of tax exemption on investment income related to transition to retirement income streams (non-retirement phase pensions).
The result of this election meant the pension assets had their cost base reset to the market value at the reset date (for a lot of funds this was 30 June 2017). The acquisition date was also reset which freshened up the timing of the 12-month period required to hold an asset before disposing of it to take advantage of the one-third discount. An election was not allowed to be made for an asset parcel with an underlining unrealised CGT loss.
The trustee of a self-managed super fund could elect to defer the taxable portion of the capital gain on the deemed disposal until the asset was actually sold.
SMSF trustees are required to maintain those records and the deferred capital gain is recognised as an “other capital gain” with no eligible discount and added to the net capital gains calculation as required under the usual CGT rules.
Accountants and administrators with specialised superannuation software kept those records on behalf of their SMSF clients.
What is Non-Arm’s Length Capital Gains?
Income (can include ordinary or statutory income), or expenses, which are caught under the non-arm’s length income (NALI) tax provisions can taint the disposal of an asset. It is possible the capital gain on disposal of the asset is taxed at 45%.
An example of NALI is inflating the market value of an asset owned by the member’s SMSF with a cost base of $800,00. The rental property was sold to a member of the fund for $3million. The market value of a rental property was $2million. The arm’s length capital gain was $1.2million. The trustee reported a capital gain of $2.2million. As NALI includes statutory income the arm’s length capital gain of $1.2million is tainted income.
There are complex rules in relation to the calculation of a capital gain under these circumstances and it is recommended you obtain tax advice from your Tax Agent.
Will I have to Pay Additional Tax on Capital Gains under Division 296 $3mil Tax Provision?
Division 296 tax is a new tax on earnings for members with super balances over $3million. The bill was passed in the Senate on 10th March 2026 and will be effective from 1st July 2026. Royal assent is required before the legislation is law but this is just a formality. We are waiting for the final regulations and ATO guidance to be released.
The tax is imposed on an SMSF member and not the fund but is based on the fund earnings in relation to the member’s superannuation balance. The tax can be released from the fund when a member elects to have it released and the fund has received a release authority from the ATO. Additional 15% tax is assessed on the proportion of earnings of the member’s total superannuation balance (TSB) exceeding the $3million threshold and additional 10% in relation to the TSB exceeding $10million. The TSB is measured at the end of a financial year, and a member is not caught under the proposed measures unless they exceed the threshold.
The most significant change between the draft legislation and the final version is the Div296 tax will not be levied on unrealised capital gains. The methodology to calculate earnings is now based on a realised-earning approach. This means that capital gains will be included but only when realised. There is a special carve out to exclude capital gains built up or unrealised prior to 30th June 2026. This exemption is a one-off measure and the SMSF must “opt in” on or before the due date of their 2026/27 tax return. Relief is available to all SMSF members even if their TSB is less than $3million at the 30th of June 2026. As it may affect them in the future it is important to consider this option.
The tax will only apply to the growth of the member’s TSB over a financial year after adjustments are made for contributions and withdrawals.
Please seek strategic advice from your SMSF Specialist or Licensed Financial Adviser if you believe your super will be impacted by the proposed new Division 296 tax.
Strategies to Reduce Capital Gains Tax in SMSFs
Utilising capital losses to offset gains
If a fund made a capital loss it can offset a current year capital gain or quarantined and carried forward to offset future capital gains.
Timing of asset disposal
Control over the timing of an asset disposal can significantly reduce capital gains tax. Selling shares after holding them for 12 months will give the fund access to the 1/3 discount. Bringing forward capital losses into the same year the fund has a large capital gain should be considered.
Pensions and segregation of assets
Establishing a retirement phase pension prior to selling an asset or transferring an asset to a pension account which is a segregated current pension asset prior to the sale can reduce the capital gain. It may be a red flag to the Australian Taxation Office (ATO) if your only reason for transferring an asset to a pension account is for the tax benefits. Consider transferring the asset well before the disposal event and document the reasons for segregating it.
Reporting Capital Gains and Losses in SMSF Tax Returns
A separate tax schedule for capital gains is used to include capital gains and losses from various sources. Current year capital losses and prior year carried forward capital losses are applied against the current year capital gains. When capital losses are greater than capital gains they are recorded as unapplied capital losses and transferred to the annual return and carried forward to be applied against future capital gains.
Total capital losses are applied against total taxable capital gains. ‘Other capital gains’ include capital gains on assets held less than 12 months and deferred capital gains. Capital losses are first offset against ‘other capital gains’. A CGT discount of 1/3 is applied to the remaining discountable gains after capital losses have been applied. The net capital gain is then transferred to the income section of the fund’s annual return.
The ECPI is included in the item at “exempt current pension income” in the income section of the fund’s annual return reducing the fund’s assessable income.
A capital gain or loss arising from a segregated pension asset is disregarded and not included in the CGT schedule or the annual return.
There is a minor exception to the above which is a carry forward capital loss for collectables which is quarantined and offset against capital gains from collectables.
Example – Capital gains tax calculation
| Current year capital gains and capital losses |
Taxable capital gains (before discount) |
Capital Losses |
Carry forward
Capital
Losses |
Capital Losses
Applied |
Taxable Capital Gain |
| |
$ |
$ |
$ |
$ |
$ |
| Shares |
20,000 |
(6,000) |
|
|
20,000 |
| Real Estate |
45,000 |
|
(25,000) |
23,600 |
21,400 |
| Deferred capital gains |
5,100 |
|
|
5,100 |
0 |
| Other capital gains |
2,300 |
|
|
2.300 |
0 |
| Total |
72,400 |
(6,000) |
(25,000) |
31,000 |
41,400 |
|
|
|
|
|
|
| Less CGT discount |
|
|
|
|
(13,800) |
| Net Capital gain |
|
|
|
|
27,600 |
|
|
|
|
|
|
| Exempt Current Pension Income (ECPI 70%) |
|
|
|
|
(19,320) |
| Total assessable capital gains |
|
|
|
|
8,280 |
Indexed capital gains have not been included above as most funds no longer carry these older style gains. Please contact your SMSF Specialist if your SMSF capital gains includes indexed capital gains.
Frequently Asked Questions
Question 1
My Self-Managed Superannuation Fund owns speculative listed mining shares. They are going through the roof. The fund is in 100% accumulation mode and the members are not eligible to start a pension. Should I sell now or wait until the fund has owned them for 12 months so the fund can claim the 1/3 discount and reduce the fund’s tax liability?
Timing does matter as holding the shares to obtain the 1/3 discount can be significant for tax purposes with an effective tax rate of 10 %. However, being speculative shares should you wait? You have to weigh up additional tax vs possible change in the market and possibly losing your money.
Question 2
Will my SMSF pay CGT on the sale of listed shares which are traded often and not held for long-term gains?
Yes. s 295-85 of the Income Tax Assessment Act 1997 states this is primary code for CGT to be calculating gains or losses for a complying superannuation fund. Broadly this means that regardless of the trading activity the shares are taxed as a capital gain.
Question 3
Can I transfer the commercial property owned by my SMSF to my pension account as a segregated asset?
Yes. However, you need to consider the cost of doing this as segregation of assets can lead to higher administration costs. Does your pension balance have sufficient capital to absorb the market value of the property? The property cannot be partly transferred. Ensure you minute the reasons for transferring the property as tax savings should not be the only reason for doing this. Does the rent from the property give you sufficient cashflow to meet pension payment requirements in the future and ongoing property expenses?
Please seek professional advice from your SMSF Specialist or Licensed Financial Adviser before selling any fund assets or establishing pensions to ensure legal matters, tax laws, SIS laws and regulations are complied with and the strategy fits with your fund’s investment strategy and your retirement needs.
Key Takeaways
- income of an SMSF is generally taxed at the concessional rate of 15 %
- a SMSF is eligible for a discount on capital gains on assets held longer than 12 months with only two-thirds of the capital gain is taxed
- carried forward capital losses can offset capital gains but cannot offset ordinary taxable income of a complying SMSF
- if a fund was wholly in retirement phase for all of the financial year any capital gain or capital loss is disregarded, and is not subject to tax
- ecpi reduces assessable income in relation to capital gains and other income arising from assets used to pay a superannuation income stream
Do you need help with understanding SMSF Capital Gains Tax?
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