When an SMSF sells its property

MY SELF-MANAGED super fund owns a residential investment property and I am considering putting it up for sale. What is the amount of capital gains tax payable by the SMSF on the sale proceeds?

Answer this week provided by Liam Shorte, a financial planner and SMSF specialist at NextGen Wealth Solutions.

Anyone considering the tax implications of buying or selling a property should speak to their registered tax agent or their accountant.

When it comes to superannuation and capital gains tax (CGT), the tax payable depends on whether the super account is in accumulation phase (that is, not paying an income stream/pension).

Fund in accumulation phase

While a superannuation account is in accumulation phase, any capital gains your superannuation fund makes from the sale of a fund property or any fund asset is subject to up to 15 % earnings tax. The exact tax implications when selling the property investment will depend on the length of time an SMSF owns the asset before sale and the purchase cost, holding costs and sale price. A good tax agent will work out your net capital gain.

If an asset is sold within 12 months of purchase, then any net capital gain is subject to 15% earnings tax. If the asset/property sold has been held for more than 12 months by the fund, then the fund can take advantage of the 33% CGT discount for SMSFs. The CGT discount means the SMSF only pays tax on two-thirds of the capital gain. In effect, a tax rate of 10%.

Fund in pension phase

If you are in pension phase in your SMSF fund, then no tax is payable on any earnings from assets financing the pension (income stream). To put it simply, your super fund does not pay tax on investment income, including capital gains, from assets that finance a pension (income stream).

Important note to those with property in their SMSF

An important reminder was issued in an ATO draft ruling TR2011/D3 in 2011, reminding trustees of the need to be aware that CGT may be payable upon the sale of fund assets after your death, if you do not have a reversionary beneficiary or you have arranged for any death benefits to be paid as a lump sum. If you are leaving any or all of your super benefits to your adult children or to other ‘non- dependants’ then you must pay death benefits as a lump sum.

If you do not have a reversionary beneficiary (spouse or dependent child are the main categories) and your property has a significant capital gain then you should get estate planning advice and also tax advice as you may consider selling the property while still living to minimise this tax.

Where to find out more

For more information on the ATO release click on this link.

For more from Liam Shorte, Financial Planner and SMSF Specialist Advisor visit www.nextgenwealth.com.au and www.smsfcoaching.com.au or follow him on Twitter @smsfcoach