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Home / SMSFs / SMSF strategies and checklists / Managing capital gains tax in your SMSF

Managing capital gains tax in your SMSF

When you invest, you make capital gains when asset values increase and capital losses when their values fall.

While the object of investing is to build your capital, the downside of making significant capital gains is that you can end up with a tax liability when the assets are sold.

When it comes to your SMSF, the right strategies can help you effectively manage capital gains tax (CGT) and reduce its impact on your super balance.

Important

If you are considering using any strategy to reduce your tax bill, you should always speak to a registered tax agent or accountant before taking any action.

CGT is a very complex area of taxation law and a qualified tax professional will be able to help you successfully navigate the rules. They may also be able to help with strategies to minimise tax legally.

This information is of a general nature only and cannot be considered financial advice.

What are capital gains and CGT?

Before discussing strategies, it’s worth brushing up on the basics of how CGT works.

CGT is part of the normal income tax of your SMSF (or of your personal income tax for gains you make outside super), not a separate tax. Under tax law, whenever you sell an asset and make a capital gain, you’re generally required to pay tax on the capital gain since purchasing the asset.

Keep in mind that a CGT event only occurs when an asset is sold or ‘realised’.

For example, if super fund A bought asset X three years ago for $100,000 but sells it for $120,000, the realised capital gain made on that asset is $20,000. Conversely, if the fund sells asset X for $80,000, it suffers a realised capital loss of $20,000.

A realised capital gain can be offset against any realised capital losses. Your net tax position is then used to calculate the amount of CGT payable. Generally, there is no time limit on how long a capital loss can be held to offset future capital gains.

The ATO defines a net capital gain as:

  • Total capital gains for the year

less

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

less

  • CGT discount and any other concessions (more on this below).

Division 296 and CGT cost base reset

With Division 296 tax coming into effect from 1 July 2026, it’s important that SMSF trustees understand the rules around resetting the CGT cost base on their fund assets.

Read more about Div 296 super tax.

Div 296 tax applies additional tax on super fund earnings from 1 July 2026, including any realised capital gain on the sale of fund assets. To ensure that only post 1 July 2026 capital gains are caught, SMSF trustees have the option to reset the cost base of their CGT assets to their market value on 30 June 2026.

This would essentially mean that unrealised capital gains up until that time are disregarded for Div 296 purposes.

Key considerations:

  • Resetting the cost base on fund assets is optional. SMSF trustees are by no means compelled to do anything.
  • If trustees elect to reset the cost base, it must be carried out and applied to all fund assets, not on an asset-by-asset approach. Therefore, assets that are currently in an ‘unrealised capital loss’ position would need to have their CGT cost base reset to market value. It’s important that trustees carefully consider this outcome.
  • The cost base reset is only applicable for the purposes of determining ‘income’ for Div 296 purposes. The actual cost of fund assets will still be used for determining capital gains tax under the normal super fund tax rules. This may result in the need for SMSF trustees to maintain additional fund records.
  • There is absolutely no requirement for an SMSF to have a member with a total super balance above $3 million on 30 June 2026 to access the cost base reset rules; all SMSFs can utilise this one-off opportunity.
  • Trustees will need to make an irrevocable election at the time of lodging their 2026–27 fund annual return for the CGT cost base reset to be effective.
  • The value of SMSF assets held on 30 June 2026 will be subject to additional scrutiny, so make sure you keep evidence around the process used to value your fund assets.

Read more about asset valuation guidelines for SMSFs.

How CGT liabilities are calculated

In the process of buying and selling assets during a financial year, SMSFs may generate both capital gains and capital losses.

The CGT liability for any capital gain depends on whether the fund is in accumulation or retirement phase and whether there are fund members in each of those phases:

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a. Accumulation phase CGT rules

If an SMSF is wholly in accumulation phase, it will pay CGT on the fund’s annual realised net capital gain. The net gain is treated as income for tax purposes, so it will be taxed at the same rate (15%) as other income in the fund. If an asset is held for more than 12 months, any realised capital gain is eligible for a discount of one-third, resulting in an effective tax rate of 10%.

Capital losses in SMSFs in accumulation phase can only be used to offset capital gains and cannot be used to offset any other income. A capital loss can be carried forward to future years in accumulation phase and used to offset capital gains at that time.

b. Retirement phase CGT rules

Because income earned in retirement phase is tax free, if the asset is sold in retirement phase, the SMSF will have no CGT liability on the capital gain. That is, capital gains and losses on the sale of an asset are ignored where an SMSF is entirely in retirement phase.

Case study 1

Jeff has an SMSF in accumulation phase and has made capital gains of $10,000 on the sale of shares this year. The shares were held by his fund for longer than 12 months, so his SMSF is eligible for the CGT discount. The fund also has unapplied capital losses of $3,000 from earlier years that can be offset against this year’s capital gain.

The net capital gain for Jeff’s SMSF is calculated as follows:

  • Net capital gain = $10,000 – $3,000 = $7,000
  • Taxable CGT amount = $7,000 – ($7,000 x 1/3 discount)
  • = $7,000 – $2,333.33
  • = $4,666.67

This net capital gain amount will be added to the SMSF’s income and taxed at 15% for a tax liability of $700 ($4,666.67 x 0.15 = $700).

Note: To be eligible for the concessional tax rate of 15% on all income earned, an SMSF must be a complying fund adhering to all the legal requirements for an SMSF. If it’s non-complying, tax is levied at 45%.

Strategies for managing capital gains and losses

Strategy 1: Deferring capital gains until retirement

You can defer a capital gain by putting off the sale of an asset on which you expect to make a capital gain until all the members of the SMSF are in retirement phase.

Case study 2

Rajiv is expecting to retire next year. His SMSF has a balance of $900,000 and is wholly in accumulation phase. That balance includes a parcel of shares bought for $10,000 15 years ago which is now worth $30,000.

If Rajiv sells the parcel of shares today, and he has no other capital gains or losses, he will have a tax liability of $2,000:

  • $30,000 – $10,000 = $20,000 capital gain
  • $20,000 – ($20,000 x 1/3 discount) = $13,333.33
  • $13,333.33 x 0.15 = $2,000

If Rajiv holds the asset for one more year instead and sells the parcel of shares once his fund is wholly in retirement phase, the tax liability would be zero and he would be $2,000 better off.

Rajiv needs to consider other factors, however, such as the investment outlook for the asset. If the investment was to fall in value by 50% before he retired, for example, his current tax liability of $2,000 would pale in comparison to the loss of $15,000 to the SMSF.

Strategy 2: Using a capital gain to offset a capital loss

Capital losses from SMSF asset sales can be held until the fund realises a capital gain. If the fund is expecting a capital loss in a particular year (such as from selling a poorly performing asset), it can make sense to realise a capital gain in the same financial year.

This is useful when all fund members are close to retiring, as carrying forward capital losses is worthless when the SMSF moves wholly from accumulation to wholly retirement phase and becomes tax free.

Case study 3

Bill and Bo have an SMSF and are both two years away from retiring. They have an investment in a bundle of XYZ shares which they bought for $10,000 two years ago, but the value has fallen to $9,000. They want to sell that bundle of shares before they fall further in value but, if they do, the fund will have a capital loss of $1,000.

They also have an investment in ABC shares, which they bought three years ago for $10,000 and which are currently worth $11,000 but have stayed at that value for the past 12 months. They have been discussing whether to wait until they both retire to sell both parcels of shares so as not to realise any capital gains.

They finally decide to sell both parcels of shares this year with the capital gain completely offset by the capital loss. They then use the proceeds to buy $20,000 worth of TUV shares, which has excellent growth prospects. That bundle of shares increases in value over the next four years to $25,000.

When they sell them in retirement phase for a net capital gain of $5,000, there is no tax payable. This is potentially a better outcome than if they held onto their previous two parcels of shares and sold them in retirement phase.

Common questions about capital gains in SMSFs

Transcript

Q: My wife and I have set up a new SMSF with a corporate Trustee (we are the directors). We want to transfer the assets from our old SMSF (we are the trustees). Some of the shares have large unrealised capital gains (e.g. Cochlear, CSL). Will there be capital gains tax payable by the old fund?

A: Before I get into your particular query, let’s just look at the two different ways or the two different structuring options for self-managed funds, being corporate trustee versus individual trustee. With a corporate trustee, you have a company, a corporate trustee acting as trustee for the fund and what you’ve said is this is where you are now. In this structure, you’ve got the directors of the corporate trustee.

I’ll go back to the example from before: Director One, Will, Director Two, Kate. They’re the directors of Kensington Pty Limited, and Kensington Pty Limited is the corporate trustee of the Royal SMSF. Now, with this structure, all directors need to be members, and all members need to be directors. Hence, director Will is also member Will, and director Kate is member Kate. You’ll see there that’s the typical corporate trustee structure.

The alternative is from what you set out, what you used to have, individual trustees being Will and Kate as trustees for the Royal SMSF. In this case, all individual trustees are members, and all members are individual trustees. The same thing here. What you haven’t got under individual trustees is that corporate trustee, that veil there, where you as individuals are acting as individual trustees instead. If you look at a corporate trustee, you expect all assets of the fund to be held as Kensington Propriety Limited as trustee for the Royal SMSF. If you had individual trustees, you would expect all assets to be owned as Will and Kate as trustees for the Royal SMSF. I just wanted to set out these two different structures to cover it off before we jump into what’s happened in your case.

What I don’t know is what really occurred. Have you just replaced the individual trustees of your SMSF with a new corporate trustee? Have you gone from Will and Kate as trustees of the fund and replaced them with a company? What I’m getting at here is you still have the Royal SMSF, you’ve just changed to a trustee. Or have you actually gone out, set up a brand new super fund, and you’ve essentially now got two SMSFs? That is something that does really need to be considered.

The outcome can be quite different. I do have to be really clear here, you need specific tax advice that takes into account your own personal position, because what’s happened here is not clear. I don’t want to guess, and I’m not here to give personal advice, but I’m here to set out what the issues are.

If all you’ve done is replace the trustee of the fund, you’ve still got the same, call it the James Family Superfund, and you’ve just changed the trustees from James and spouse to a company of which James and spouse are directors. All you’ve done there is change the trustees. That usually doesn’t result in a CGT event. Why I say that is that the trustees hold the legal ownership of the asset for the members’ benefit, so for the beneficial owners being the members. If there’s no change in the beneficial ownership and all other aspects of the fund remain the same, we haven’t got new members or anything like that, then there might be a CGT exception. There might not be a CGT event to occur there.

But again, I’m not sure what’s taking place. If you’ve set up a brand new super fund, then arguably the assets of your first fund need to be rolled over, they need to be sold or rolled over to your new SMSF by a way of a legal change to the ownership of the assets. So, Will and Kate, as trustees for the Royal SMSF (old), need to be changed to Kensington Propriety Limited as trustees for the Royal SMSF (new). And that can result in a change to legal ownership of the asset. And depending on what’s happened, are new members in or the same members going out, there may be a change in the beneficial ownership, which could create some tax issues.

I haven’t got a yes or no answer to you here, but hopefully by painting the picture of what’s actually happened inside your fund, it might help you identify any tax outcome. I do encourage you, though, to seek advice. Usually before you do these things, I’d suggest someone’s helped you with that. If that’s the case, go back to them and ask them about those tax outcomes.

Transcript

Q: I’ve started my retirement phase planning with the SuperGuide checklists proving very helpful. I’ve got property assets in my SMSF. I was intending to allocate those property assets into my pension portfolio, then sell them and re-use the liquidity in the pension phase investing/payments. Would going with a transition to retirement (TTR) plan rather than full retirement have an impact on CGT on the property sales?

A: Two points which need to be stressed here, Frank. Number one, the earnings on assets held within your fund that are used to pay transition to retirement pensions, and those earnings include capital gains tax; they are not exempt from tax. The tax exemption that we usually get on fund earnings only applies to retirement phase income streams.

The exemption doesn’t apply when the pension being paid is a transition to retirement pension. Based on your question around intending to sell an asset and using a TTR for tax, you won’t get the tax benefits that are typical to a retirement phase pension. In other words, you’ll be paying tax on those earnings, including capital gains.

Look, if the assets been held for longer than 12 months, you would get the usual one-third discount. So essentially, the capital gains would be taxed at 10% rather than 15%. TTRs don’t get those same tax concessions.

The second point that I wanted to make here is, be careful when you identify, when you allocate, when you segregate an asset to the pension phase of super, if the sole purpose is to get a tax benefit. What I mean by that is, you’ve mentioned your question, I was intending to allocate a property asset to a pension, then sell it. If the only reason you’re starting a pension or identifying and segregating an asset to be pension is for tax benefits, you can get in trouble with the tax office. So what I suppose I mean by that is, you would ensure that that’s not the sole reason for selling it.

The investment strategy might be that in retirement, you want more conservative assets in pension values and not property or growth assets. The point I suppose I just want to be clear on is, don’t use tax-planning tools around segregation for the sole purpose of getting a tax benefit in retirement phase. Just be careful with that. If you’ve got an accountant or fund administrator that you use, have a chat to them about that and around the anti-avoidance measures.

Now, one other thing I need to quickly cover off is a question around transition to retirement pensions. And it’s relevant for anyone who is currently accessing a transition to retirement pension where they are either turning 65 before 30 June, or where they’re retiring at 30 June.

So, in the next couple of weeks, if you’re turning 65 or retiring, and you’re receiving a transition to retirement pension, there’s something that you need to be careful with. When you are in receipt of a transition to retirement pension, and you meet a condition of release that gives you full access to money (those conditions of release include turning 65 or retiring), what happens is your transition to retirement pension at that date becomes a retirement phase income stream, and it gets assessed against your transfer balance cap.

Now, why I just want to stress this is, if that happens this year, you will be assessed against the $1.7 million transfer balance cap as this event occurred before 1 July 2023. After 1 July 2023, we know that the $1.7 million cap is going to be indexed to $1.9 million. But because this automatic event of retiring or automatic event of turning 65 took place in the current financial year, your TTR, will be assessed against the $1.7 million cap, not the $1.9 million cap. So, it’s just a trap to be aware of over the next couple of weeks.

If you are turning 65 or retiring, it might be worth turning the TTR off. I should say it’d be worth getting some advice around your personal position, but you might be able to turn the pension off, so it doesn’t automatically get assessed, and therefore you get the index $1.9 million cap. Just something to be aware of.

Some further resources you may wish to look at:

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Responses

  1. manfred preisenberger Avatar
    manfred preisenberger

    If only one member is in the retirement phase, how is the CGT calculated, if any?
    Thanks Manfred

    1. SuperGuide Avatar
      SuperGuide

      Hi Manfred,
      When not all members or assets are in retirement phase, an SMSF must determine which income of the fund is taxable and which is tax-free. The tax-free income is called exempt current pension income.
      Learn more about how to determine exempt current pension income.
      Best wishes
      The SuperGuide team

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