SMSF capital gains tax can vary significantly based on how your SMSF is structured and how long the asset being sold was owned.
By understanding the application of SMSF capital gains tax, you can manage the sale of assets within your SMSF in a way that minimises tax – or even eliminates it.
SMSF Capital Gains Tax
The factors that determine capital gains tax within a self managed superannuation fund (SMSF) include whether the SMSF is in accumulation phase or pension phase, how long the asset was owned and any capital losses that can be applied against the capital gain.
The capital gains tax in super is actually the same for all types of superannuation funds, not just SMSFs.
SMSF Tax Rate
The SMSF tax rate on investment earnings depends on whether the SMSF balance is in accumulation phase or pension phase.
If the SMSF is partly in accumulation phase and partly in pension phase (or retirement phase), the earnings tax rate applied will be:
- If the SMSF runs a pooled investment strategy: Proportionate based on the ratio of the SMSF balance pension phase and accumulation phase; OR
- If the SMSF runs a segregated investment strategy: The phase that the investment relates to will be the tax rate that applies.
SMSF Tax Rate – Accumulation Phase
The SMSF tax rate on investment earnings, including realised capital gains, within the accumulation phase, is 15%. This is a flat rate, regardless of your age or employment status.
However, if an investment sold within the accumulation phase was owned for longer than 12-months, the general SMSF CGT discount will apply.
SMSF Tax Rate – Pension Phase
The SMSF tax rate on investment earnings, including realised capital gains, within the pension phase is 0%. This is a flat rate, regardless of your age or employment status.
SMSF CGT Discount
The SMSF CGT discount applied to investments sold that had been owned for longer than 12 months is a 1/3rd discount.
That is, the realised capital gain is reduced by 1/3rd before the 15% tax is applied.
It is often said that the tax rate on realised capital gains resulting from the sale of an asset owned for longer than 12 months is 10% – due to the 1/3rd discount. But this is not always the case, as any capital losses (or carried forward losses) will first be applied against the capital gain, before the 1/3rd discount and before the 15% tax rate applies, which means the effective rate may be different to 10%.
Do SMSFs Pay Capital Gains Tax?
Yes, a SMSF pays capital gains tax when an asset held within the SMSF is sold and a gain is realised, unless the SMSF is wholly in retirement pension phase.
A self managed superannuation fund is a tax-paying entity and is therefore responsible for the payment of income taxes and capital gains taxes. The onus of tax payments resulting from the sale of investments within a SMSF does not fall on the member personally, but is effectively paid out of the member’s super balance.
What Happens When You Sell a Property in a SMSF?
If a property is sold within a SMSF, the proceeds are paid into the bank account of the SMSF. The sale of the property is considered a CGT event. If the sale of the property resulted in a capital gain, then capital gains tax may be payable, depending on whether the asset was held wholly in accumulation phase, pension phase or a combination of both.
If the sale of the property resulted in a capital loss, the loss can be used to reduce capital gains resulting from the sale of other assets in the same year, or carried forward to offset losses in future financial years, until completely used up.
SMSF Property Sale CGT Example
An example of capital gains tax resulting from the sale of property would be as follows:
Let’s say your SMSF purchased a property 4 years ago for $500,000 and sold it this year for $800,000 (you little property guru, you!). This would be a realised capital gain of $300,000.
If the total balance of the SMSF (i.e. all member accounts) was in the retirement pension phase (not TTR pension), the whole capital gain would be received completely tax-free.
If the total balance of the SMSF was in the accumulation phase, the whole capital gain would receive a 1/3rd CGT discount ($100,000), because the asset was owned for longer than 12 months. Therefore $200,000 would be taxed at 15% ($30,000 CGT).
If half of the SMSF balance was in pension phase and half in accumulation phase and you were running a pooled investment strategy, then half of the $300,000 ($150,000) would be received completely tax-free and the other half ($150,000) would receive a 1/3rd discount ($50,000) and the remaining $100,000 would be taxed at 15% ($15,000 CGT).
If you had not owned the property for more than 12-months, then the 1/3rd CGT discount would not be applied – the full realised capital gain would be taxed at 15%.
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