Q&A: SMSF Capital Gains Tax (CGT): How It Works for Self Managed Funds

When you sell shares, property or a business and generate a profit, you have made a capital gain on the transaction. Capital gains are generally considered taxable income but exactly how much tax is payable on this income often boils down to how long you have held the asset before selling it.

Having an SMSF provides the trustees of the fund with a greater level of flexibility to buy and sell investments provided they stay within the bounds of the trust deed and superannuation law. With greater control over the investments comes greater control over the capital gains tax.

When you buy and sell assets within the SMSF to generate a return, you may attract capital gains tax on any earnings when you sell the asset. Exactly how much capital gains tax you will incur depends on a variety of factors which we will analyse in more detail below. Of course, you should always seek personal financial advice and tax advice on the topic but we have provided some general information below for you to consider with any future capital gains.

What exactly is a capital gain?

A capital gain is when you sell an investment for more than you bought it, resulting in a profit. For instance, if you purchased an investment property for $500,000 and sold the property after five years for $700,000, you would have made a capital gain of approximately $200,000, minus transaction costs of course. On the flip side, if you purchased an investment property and you sell it for less than what you paid for it, you have made a capital loss. 

- The Accountant (semi-retired)

As an individual, you are required to report any capital gains or losses in your personal tax return and pay tax at your marginal tax rate. SMSFs are in a similar boat and must also include capital gains and losses in their annual tax return.

- The Marketing Executive (mid-30s)

Do you pay CGT in an SMSF?

An SMSF is generally taxed at the concessional tax rate of 15%. However, this can change if the fund is in the retirement phase. Capital gains or capital losses incurred by the SMSF during the financial year will be included in the income of the SMSF. By holding onto an investment for longer than 12 months, an SMSF may be entitled to discount the capital gains tax by 33%, which means approximately two-thirds of the capital gain will incur the tax. Another way to put this is that the SMSF will pay an effective tax rate of 10% after the one-third discount is applied to the standard 15% rate, where this discount can be applied. 

- The Small Business Owner (early 60s)

When the SMSF is in the retirement phase and paying income to members, it’s possible that the fund can pay even less tax during this phase of the SMSF’s operation. This is due to the fund’s ability to claim an exemption for any income that is generated by assets used to pay members, taking the effective tax rate to zero in this instance. When all the members of the fund are in the retirement phase, and none are in the accumulation phase, and they’re being paid by the SMSF then the fund will pay zero tax on any capital gains, regardless of how long the investment has been held for. 


The effective tax rate on capital gains
Time the asset has been held by SMSF prior to sale Accumulation phase Retirement phase
Less than 12 months 15% 0%
More than 12 months (33% discount) 10% 0% 

- The Accountant (semi-retired)

It should also be said that the above applies not only to SMSF’s but also to regular superannuation funds, so if you have an industry super fund or retail super fund you will likely pay similar rates of tax. Because of this potential tax advantage during the retirement phase, it is worth carefully planning when you dispose of assets if you are close to this phase in the fund as it can be the difference between paying some tax or no tax at all. 

- The Marketing Executive (mid-30s)

Things can get a bit more complicated when only some of the members of the fund are in the retirement phase, and some are in the accumulation phase or a combination of both. The capital gains tax treatment of assets in this scenario all comes down to whether the assets are segregated or unsegregated. Another consideration is the ‘transfer balance cap’ and if the proceeds from the sale of an asset will breach the upper limit on the amount that can be transferred and held onto during the retirement phase. 

It can be worthwhile considering professional tax help when it comes to making decisions about the fund and the related capital gains tax, and this can help avoid costly mistakes and incurring tax penalties. 

- The Accountant (semi-retired)

What capital gains tax do you pay while in the accumulation phase?

When an SMSF is solely in the accumulation phase, the fund will pay tax on the net capital gain. If the investment is held for a period greater than 12 months then any capital gain is eligible for a one-third discount. 

- The Small Business Owner (early 60s)

Net gains are treated the same as income with regards to tax making the effective rate 15%. To qualify for the concessional tax rate of 15% on all income within the fund, you must be a fully compliant SMSF and adhere to all legal and reporting requirements. Non-compliant funds may incur a penalty tax of 45%.  

- The Marketing Executive (mid-30s)

How are capital losses considered in an SMSF?

Selling an asset while in the accumulation phase which results in a capital loss can only be used to offset capital gains and not used to offset other income within the fund. Capital losses can also be carried forward to future years in the accumulation phase if need be to offset capital gains when required. There is no time limit on when a capital loss can be used to offset a capital gain in the future which might come in handy.

- The Accountant (semi-retired)

Are there any deferral capital gains tax strategies?

Given the tax advantages relating to capital gains when an SMSF is in the retirement phase, the most apparent strategy is to delay the sale of an asset until all members in the fund are in the retirement phase. This approach gives you a great reason to stick to the classic buy and hold investment strategy.

- The Small Business Owner (early 60s)

How do super contributions reduce capital gains tax?

Realising gains from an investment outside of super, then paying the applicable CGT and using the remaining revenue to contribute to super could be worth considering. Earnings in super are subject to a lower tax rate on investment earnings, which can compensate you for the CGT payable. When doing so, you could be eligible to use the tax deduction to offset a part of or all of the CGT liability. Considering the tax-deductible amount of the super contribution will be taxed at the concessional rate of 15%, this strategy can allow you to make larger contributions to super to grow your retirement savings faster. Receiving professional advice on this topic is the best way for a financial advisor to understand your personal financial situation to determine eligibility.

What are the steps to claim the tax deduction?

You will need to submit a Notice of Intent form to be eligible to claim a tax deduction on the super contribution. Then you will need to receive notice of acknowledgement from the super fund before you submit your tax return, move funds for a contribution, withdrawal, rollover or pension payment.

Ensure you fully utilise the tax deduction

Reducing your assessable income below the lowest marginal income tax rate where 19% is currently payable is generally not tax-effective to claim a deduction. In this scenario, it would result if you pay more tax on the contribution to super than you would save from the deduction.

What are the CGT exemptions for SMSFs?

On top of the one-third discount rule, your SMSF could also qualify for additional tax concessions if any of the fund’s members are in the pension phase. When this happens, the SMSF will begin paying the members a pension income stream; the SMSF may pay even less capital gains tax. SMSFs in the pension phase can claim an exemption for any income generated by assets used to pay a superannuation income stream. According to the ATO, if an SMSF trustee claims the exemption, it can lower the tax rate on those amounts (including the CGT) to zero. When all of the SMSF members are in the retirement phase (none in the accumulation phase), this can mean that the SMSF is eligible to pay no CGT on investment earnings, regardless of the assets it sells and the ownership period.

General Advice Warning

Gareth Lane

Concise Digital

Gareth Lane is a successful entrepreneur, businessman, and owner of the digital marketing and web agency Concise Digital, based out of Perth, Western Australia. Concise Digital have solved over 60,000 digital / web problems for clients since 2005. Gareth is one of the founders of SMSF Mate.

Gareth is passionate about helping small businesses be more successful online by avoiding the pitfalls of digital marketing. He regularly runs live talks, workshops and meetups discussing Google, social media and all things digital marketing.

Gareth studied Business and Commerce at Curtin University, and has held board positions for a number of organisations, including serving as the President of the Western Suburbs Business Association and as a non-executive member of WA Business Assist. A true entrepreneur at heart, he started his first business at 13 and has created and run multiple successful businesses since.

Gareth enjoys good food, great wine and time in the sun when he’s not at his computer helping other businesses get ahead!

You can find out more about Gareth or connect with him on Linkedin here:

Or visit his websites here: or

Show More

Ashwin Ramdas

Eventum Consulting

Ashwin is an accountant and educator based in Perth, Western Australia. He is passionate about helping family owned businesses and startups. He is one of the founders of SMSF Mate and you’ll regularly see him on our podcast!

Ashwin is a managing owner and director of Eventum Consulting, a multidisciplinary firm helping clients with finance, succession planning and their tax needs. He also served as a lecturer in taxation and small business at the Central Institute of Technology, and has worked as an accountant at a number of well-known tax specialists.

Ashwin studied a Diploma of Business Education and a Bachelor of Commerce in Financial Accounting, Managerial Accounting and Corporate Finance, both at Curtin University, WA.

Ashwin is passionate about technology, and sees it as an enabler for his clients to grow truly sustainable and profitable businesses.

You can find out more about Ashwin or connect with him on Linkedin here:

Or visit his website here:

Show More

Kind words from Aussies managing
their own self funded futures

  • SMSF Mate is a unique website because it has ideas about how to approach SMSFs, insurance and other financial topics that come straight from first hand experience. It's much more useful than what you find on all the other financial websites that just offer generic info that you could easily get on the ATO's website. It's also nice to know there's no financial incentive behind the information, it's legitimately there to help people understand self-managed super funds and how to get the most out of them, not to get an affiliate commission from a broker or other financial services provider. The investment product information is also incredibly useful, I've never seen this kind of functionality on any other website that let's you look at such a wide range of products, sort by what info is most interesting or important to you, and subscribe to updates for different funds and financial products all in one place. Definitely worth checking out if you own or are considering an SMSF!

    David G, Self-Employed, SMSF Owner
  • SMSF Mate provides a unique insight into superannuation and financial topics in a way that is easier to understand than conventional websites. The colloquial nature of the site makes it easy to understand and they often speak about complicated topics in lamens terms so I can wrap my head around them. The investment product information is a great way to research funds that I am interested in investing in with my SMSF and there is a lot of helpful information on the site for better structuring my investment portfolio. In comparison to other websites which offer similar information, SMSF Mate excels as the information is free to access whereas many other sites charge a subscription fee for the same thing. Overall, I think SMSF Mate is a great resource for SMSF trustees and is worth looking at for a variety of super-related topics. Thanks.

    Tim B, Business Owner, SMSF Trustee