How does capital gains tax on SMSFs work?

Australians investing through their self-managed superannuation fund (SMSF) need to have a clear understanding of how capital gains tax (CGT) applies to their fund.

In simple terms, SMSFs must pay CGT in much the same way as other individuals and entities. But how it's applied will depend on members' circumstances.

How is a capital gain calculated?

As defined by the Australian Taxation Office (ATO), a capital gain is achieved when investors end up with a profit after selling an asset or assets. According to the ATO, an SMSF's assessable income includes "any net capital gains, unless the asset is a segregated current pension asset".

Complying SMSFs are entitled to a capital gains tax discount of one-third on any asset that has been owned for at least 12 months.

Here's the ATO's formula for calculating tax on net capital gains:

• Net capital gain (total capital gain for the year)

• Minus any capital losses for that year and any unapplied capital losses from earlier years

• Minus the CGT discount of 33.33% and any other concessions (if eligible)

As a general rule, a capital loss is not an allowable deduction and is only able to be offset against capital gains.

In times when capital losses are greater than capital gains in a financial year, they must be carried forward to offset future capital gains.

If you're looking for an estimate on GCT liabilities, you can use Your Mortgage's handy calculator.

How is capital gains tax calculated for SMSFs?

CGT and the tax rate for investments under SMSFs will depend on whether an asset is held within the fund's accumulation phase or pension phase.

Assets held in the accumulation phase

As outlined, capital gains and losses made during a financial year are used to calculate the fund's assessable income.

While the SMSF is in accumulation phase, income is generally taxed at a concessional rate of 15%.

However, if an investment had been held for more than 12 months, two-thirds of the capital gain is taxed at 15%, while the remaining third will bear a discounted rate of 10%.

Assets within the pension phase

Capital gains on investments sold within the pension phase to fund an income stream are tax-free.

SMSFs can switch into pension phase at any time after a member reaches what's called 'preservation age' which varies on a sliding scale depending on when you were born, as follows:

Date of birth	Preservation age
Before 1 July 1960	55
1 July 1960 - 30 June 1961	56
1 July 1961 - 30 June 1962	57
1 July 1962 - 30 June 1963	58
1 July 1963 - 30 June 1964	59
From 1 July 1964	60

(Source: ATO as at July 2025)

The fact that capital gains are untaxed during pension phase is the reason many SMSFs have a general policy of trying to avoid the sale of assets until their funds begin to pay a pension.

However, if some members of the SMSF remain working, their component of the SMSF will remain in accumulation phase and the tax schedule will differ accordingly.

In such cases, it's wise to consult an SMSF tax professional to ensure capital gains are apportioned correctly.

Other tax deductions of SMSFs

A complying SMSF is allowed to deduct from its assessable income any losses or costs that are:

• Incurred in gaining or producing assessable income (e.g. costs involved in the sale of a property)

• Necessarily incurred in running a business for the purpose of gaining or producing such income

But losses and costs relating to income that's tax-exempt - that is, incurred during the pension phase - are generally not deductible. Again, if the fund has both accumulation and pension members, the expense may need to be apportioned to determine the amount the fund can deduct.

Expenses aren't allowable deductions when they are:

• Incurred in producing exempt income

• Incurred in producing non-assessable, non-exempt income

• Of a capital, private, or domestic nature

If in doubt about what is allowable or deductible, it's always best to consult an SMSF tax specialist.

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