How does CGT work inside a self-managed super fund (SMSF) in Australia?

A self-managed super fund (SMSF) is a taxed entity and pays capital gains tax on assets it sells. However, the rates and discounts available to an SMSF are more favourable than those for individuals in many cases.

Tax rates for SMSF capital gains:

• During accumulation phase: Capital gains are taxed at 15% (the standard super fund tax rate). If the asset has been held for more than 12 months, the SMSF receives a one-third discount, effectively reducing the gain to two-thirds, meaning the effective CGT rate is 10%.
• During pension phase (retirement phase): Assets supporting account-based pensions are entirely exempt from tax, including CGT. Capital gains on assets supporting a pension are tax-free. This is one of the most significant tax benefits of drawing a pension from super.

Segregated vs. unsegregated assets: SMSFs with both accumulation and pension members must calculate what portion of gains is attributable to pension assets (exempt) versus accumulation assets (taxable). Large funds may need an actuarial certificate to determine the exempt income proportion.

CGT relief on pension commencement: When a member moves their super from accumulation to retirement phase, the SMSF can elect to 'reset' the cost base of assets to current market value, which can lock in gains tax-free. This is a complex area and a registered SMSF auditor or tax advisor should be consulted before making these elections.