SMSFs: Selling a property asset

Q: If my self-managed super fund (SMSF) owns an investment property, and the SMSF later sells the property, what is the amount of capital gain tax payable by the SMSF?

Trish’s response: Before I respond, please note that anyone considering the tax implications of a strategy or investment decision should speak to a registered tax agent, typically an accountant.

In relation to superannuation and capital gains tax (CGT), the tax payable depends on whether the super account is in pension phase, or in accumulation phase (that is, not paying an income stream/pension).

Accumulation phase

While a super account is in accumulation phase, any earnings on the assets representing that super account are subject to 15% earnings tax.

Any capital gains that your superannuation fund makes from the sale of fund assets are subject to earnings tax. The tax implications when selling a SMSF asset, such as a property investment, will depend on the length of time a SMSF owns the asset before sale.

Note: During accumulation phase, if an asset is sold within 12 months of purchase, then any capital gains is subject to 15% earnings tax. If the asset sold has been held for more than 12 months by the fund, then the fund can take advantage of the CGT discount. The CGT discount means the SMSF only pays tax on two-thirds of the capital gain. In effect, a tax rate of 10%.

Pension phase

If an individual is drawing a pension from a SMSF account, then no tax is payable on any earnings from assets financing the pension (also known as an income stream). In short, your super fund does not pay tax on investment income, including capital gains, from assets that finance an income stream.

Note: You need to be mindful that capital gains tax may be payable upon the sale of fund assets after your death, if you have arranged for any death benefits to be paid as a lump sum. If you’re leaving your super benefits to your adult children or other ‘non-dependants’ you must pay death benefits as a lump sum.

The following articles also explain how the tax rules apply to earnings on superannuation assets:

• Four must-knows about super’s tax rules
• Super tax – as easy as 1-2-3
• CGT calculations for SMSFs

Related articles:

1. SMSFs: Taking lump sums from accumulation account
2. CGT calculations for SMSFs
3. SMSF pensions: Watch out for a surprise tax bill on fund assets
4. Super for beginners, part 16: Tax-free twice
5. SMSFs: Commercial property and borrowing