investing super in property
Property Management

SMSF Capital Gains Tax: How it will affect your Investment?

SMSF trustees are in control of their “Super Funds” which they can use to invest assets. However, while this set-up is quite promising, trustees must be aware of how their funds may be affected by Capital Gains Tax (CGT).

In this article, we will teach you how it works.

What is a Capital Gains Tax?

CGT is a tax liability that usually occurs on SMSF property investors, whether SMSF holder or not. It is the fee that you need to pay for any profit that you make from your investment. This profit is known as the capital gain. It is different from the money you paid for your property investment. The CGT is included in your income tax return.

CGT occurs once any of your assets are sold. It is often triggered once your entry into a contract of sale and ceases to charge you when you are no longer the owner of the property. However, the CGT is charged to you in the same year when you sold the property.

How to acquire Capital Gain?

Once you invest in buying and selling assets, you would eventually have a capital gain. For instance, say, you invest in a real estate property worth $500,000, and in a few years, you sold it for $700,000, you would have a $200,000 worth of profit. However, if you sold the property less than the amount of cost when you buy it, that would tantamount to capital loss.

The Australian Taxation Office otherwise known as ATO requires that you include both of your capital gains and losses in your assessable income. Once you file the income tax return, you are advised to pay the marginal tax rate which includes the Capital Gain Tax (CGT). 

When is my investment liable from CGT?

The existence of CGT imposed on your profit is determined whether your SMSF is for retirement or accumulation. If it is for accumulation, you would be liable for CGT. If it is for the retirement phase, you are exempted from any tax.

If you have a Pension Phase of 100%, and your SMSF uses a segregated method, the capital gains and losses would not apply to you. It means that you can ignore the Capital losses and gain s every time you would dispose of any of your assets. Because of this benefit, many SMSF policyholders, wait until their funds started to pay for their pension. 

Meanwhile, when your SMSF is under an unsegregated method, you would be accountable for capital loses and gains. Thus, if you want to be exempted from CGT, you use the unsegregated over the segregated method for your SMSF.

Final Thoughts

The CGT does not take away from your income that much. However, while it is complex to understand, it is quite amusing how it charges nothing to pensioners. 

SMSF can be confusing, too. For this reason, you need to ensure that your SMSF financial adviser knows these basics and can truly provide you with the best SMSF advice.

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Aaron Reimann

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