SMSF capital gains tax: How much will your fund pay?

Managing your SMSF means every decision you make has a tax outcome, and capital gains are among the most critical to understand. When your fund disposes of an asset for more than its cost base, the profit is added to your fund’s assessable income.

While the 2026–27 Federal Budget replaces the 50% CGT discount for individuals and trusts with CPI indexation, SMSFs remain explicitly exempt, retaining their 33.33% discount on long-term assets.

This blog post walks you through how capital gains work in your SMSF, how to calculate them step by step, and the common traps you need to avoid.

What is a capital gain in a self-managed super fund?

An SMSF makes a capital gain when it sells an asset for more than its cost base (the original purchase price plus associated costs), and a capital loss when the sale proceeds are less than the cost base.

Capital gains form part of the assessable income of a complying fund and are generally taxed at 15%. However, if the asset has been held for more than 12 months, the capital gain itself qualifies for a one-third discount, meaning only two-thirds of the gain is included in the fund's assessable income. This effectively reduces the tax rate on that gain from 15% to around 10%, while the rest of the fund's income continues to be taxed at the standard 15% rate.

Capital gains can arise from a range of SMSF investments, such as:

• Residential or commercial property
• Listed or unlisted shares
• Managed funds
• Cryptocurrencies
• Collectables or personal use assets

These gains are treated differently from interest, rent, or dividend income, so trustees must understand when a CGT event occurs and how it affects the fund.

For example, SMSF purchased a residential unit in Melbourne for 450,000 dollars. Over the years, the fund incurs legal fees, stamp duty, and improvement costs, bringing the cost base to 470,000 dollars.

When the property is sold for 600,000 dollars, the fund realises a 130,000 dollar capital gain. The trustee must then check how long the property was held, whether any capital losses can offset the gain, and whether part of the fund was in the pension phase during the year.

How to calculate capital gains in an SMSF?

Calculating capital gains inside an SMSF involves several steps:

Step 1: Identify the CGT event: A CGT event occurs when the SMSF disposes of an asset, such as through a sale, transfer, or loss. The timing of the event determines the financial year in which it is reported.

Step 2: Determine the capital proceeds: This is the amount the fund received or became entitled to receive for the asset.

Step 3: Calculate the cost base: The cost base includes:

• Purchase price
• Legal fees, stamp duty, and other acquisition costs
• Improvement costs
• Certain holding costs were eligible

Note: Ongoing holding costs like interest, rates, and repairs that were already claimed as annual income tax deductions cannot be added to the CGT cost base.

Step 4: Apply capital losses: Capital losses from the current or previous years must be applied against gross capital gains first, prior to applying any discount. Losses cannot be applied against other income, such as rent or interest.

Step 5: Apply CGT concessions: Any assets held for 12 months or more are treated as long-term assets, and the capital gain is eligible for the 1/3 CGT discount.

Step 6: Determine the net capital gain: The final figure is reported in the SMSF annual return and included in the fund’s assessable income.

SMSF capital gains calculation example

Let’s say John’s SMSF buys a residential property on 1 June 2018 for $600,000. After holding it for three years, the property was sold on 1 June 2021 for $750,000.

To keep it simple, assume the fund has $15,000 in eligible purchase and sale expenses (stamp duty, legal fees, and agent commission).

1. Calculate the gross capital gain

First, subtract the total purchase cost and expenses (the cost base) from the sale price:

• Sale price: $750,000
• Less cost base ($600,000 purchase price + $15,000 capital expenses): -$615,000
• Gross capital gain: $135,000

2. Apply the 1/3 CGT discount

Because John’s SMSF held the property for longer than 12 months (3 years), the fund receives the 33.33% (1/3) CGT discount:

• Gross capital gain: $135,000
• Less 1/3 discount ($135,000 ÷ 3): -$45,000
• Taxable capital gain: $90,000

3. Calculate tax payable

The remaining taxable gain of $90,000 is included in the fund’s assessable income and taxed at the standard 15% super rate:

• Tax payable ($90,000 × 15%): $13,500

Outcomes

• Accumulation phase: John’s SMSF pays $13,500 in tax. Notice that $13,500 is exactly 10% of the fund's total $135,000 profit (the effective 10% rate).
• Pension phase: If John were in the retirement pension phase when selling, the entire $135,000 gain would be tax-exempt ($0 tax payable).

How Non-arm’s length income affects capital gains in an SMSF?

Non-arm’s length income (NALI) is the ATO’s rule against non-commercial deals. If your SMSF receives a financial advantage because a transaction wasn't done at fair market value, the ATO removes your tax concessions and taxes the profit at the maximum rate of 45%.

A capital gain can trigger NALI if:

• An asset is bought from a related party below market value.
• An asset is sold to a related party at above market value.
• A related party provides financing, renovation work, or services for free or at discounted non-commercial rates.

If a capital gain falls under NALI:

• The fund loses the 33.33% CGT discount.
• The entire capital gain is taxed at 45% instead of the concessional 10% rate.

What about minor fee discounts?

Under tax rules, small general expense errors (like receiving a discount on fund accounting fees) won't ruin your property’s tax status. Penalties for general operational expenses are capped at twice the difference of the undercharged amount, protecting your asset's entire capital gain from the 45% tax rate.

Example: An SMSF buys a commercial warehouse from a related business for $500,000 when its actual market value is $650,000. Because it wasn't bought at market value, the ATO applies NALI. When the fund later sells the warehouse for a $330,000 profit, the entire gain is taxed at 45% ($148,500 tax) instead of the normal 10% rate ($33,000 tax).

For further details, check the ATO's official page on Non-arm’s Length Income.

How does ECPI affect capital gains tax in our SMSF?

If an SMSF is entirely in the retirement pension phase for the whole financial year, capital gains on assets supporting those pensions are 100% exempt from tax under Exempt Current Pension Income (ECPI) rules. If the fund operates in both accumulation and pension phases, the tax-exempt portion is calculated using either the segregated or proportionate (actuarial) method.

Important points for trustees:

• ECPI only applies to income from retirement-phase assets (subject to the member's Transfer Balance Cap limits).
• Actuarial certificates are required for mixed-phase funds
• Realising a capital gain after transitioning an asset into the retirement pension phase can reduce the tax payable on that gain to 0% (tax-free).
• Correct treatment of ECPI can significantly reduce the tax payable on a gain.

How are SMSFs taxed on capital gains?

The table below helps you understand how SMSFs are taxed under different scenarios

Common CGT mistakes SMSF trustees make

Many trustees understand the basics of capital gains, yet errors still occur during the year that can affect the final tax outcome. Some of the most common issues include:

• Poor record-keeping for cost-based items such as legal fees or improvement costs
• Incorrect treatment of improvements as repairs
• Entering transactions with related parties that trigger NALI
• Failing to apply carried-forward capital losses
• Assuming all pension assets are automatically exempt without checking the actuarial percentages

These issues can lead to higher taxes, incorrect reporting or audit concerns. Addressing them early ensures a more accurate CGT position.

Strategies SMSFs use to reduce CGT

Several strategies can help SMSFs manage capital gains throughout the year:

• Using available capital losses to reduce gains
• Ensuring documentation for all improvement costs is complete
• Checking whether the one-third discount applies before selling an asset
• Maintain the SMSF compliance status

These steps can create a more efficient tax outcome for the fund.

Final thoughts

Capital gains inside an SMSF depend on timing, the phase of the fund, and how well records are maintained. Keeping this in mind, it helps to review cost bases during the year and keep evidence of any improvement costs so the gain is calculated correctly.

Making sure every transaction is completed at market value also protects the fund from NALI. When these steps are in place, it becomes easier to plan when an asset should be sold and whether capital losses can reduce the final amount.

If you need an extra set of eyes on the numbers or want to be sure everything has been captured properly, our SMSF tax accounting team is here to help you work through the details and stay compliant. You can book a call with our team if you would like support tailored to your fund.