Your SMSF’s assessable income includes any net capital gains, unless the asset is a segregated current pension asset. Complying SMSFs are entitled to a capital gains tax (CGT) discount of one-third if the relevant asset had been owned for at least 12 months.
A net capital gain is:
- the total capital gain for the year
less
- total capital losses for that year and any unapplied capital losses from earlier years
less
- the CGT discount and any other concessions.
A capital loss (for example, losses on the sale of commercial premises) is not an allowable deduction and is only able to be offset against capital gains. If capital losses are greater than capital gains in a financial year, they must be carried forward to be offset against future capital gains.
Transitional CGT relief
Transitional CGT relief is temporary relief available to trustees of superannuation funds – including SMSFs – that adjust their asset allocations to comply with the transfer balance cap, and transition-to-retirement income stream (TRIS) reforms that commenced on 1 July 2017.
To prepare for the transfer balance cap reforms, individuals may have needed to reduce amounts currently supporting superannuation income streams. They might have done this by transferring value from the retirement phase to the accumulation phase. Additionally, where individuals have a TRIS that is not in retirement phase, earnings on assets supporting these superannuation income streams became taxable from 1 July 2017.
The relief ensures that for certain assets that were supporting superannuation income streams in retirement phase prior to 1 July 2017, a trustee can still receive a tax exemption on capital gains accrued but not realised.
Applying CGT relief will reset the cost base of an asset to its market value. The market value would be determined under the Valuation guidelines for self-managed super funds on the date the relief applies.
Applying CGT relief will also allow you to defer a capital gain that arises when resetting the cost base for assets where you use the proportionate method.
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Complying SMSFs are entitled to a capital gains tax discount of one-third if the relevant asset was owned for more than 12 months.