If an SMSF holds shares, the shares must be disclosed at market value at year end. Any unrealised gains or losses will be accounted for in the Fund’s end of year Income Statements. The Fund does not need to pay any tax on the unrealised gains or losses. However, when the shares are sold, the realised capital gains will be taxed.
The taxable amount will depend on how long the shares were held by the Fund and which parcel of shares were sold. The methods of parcel selection are discussed below.
Any taxable capital gains will be included in the Fund’s assessable income in the annual tax return. Taxable capital losses are carried forward to the following financial year and can be offset against any future taxable capital gains. Generally, if the shares are held for longer than 12 months, the proceeds are taxed at 10%.
If the Member is in pension phase when the shares are sold, the capital gains will be taxed at a rate of 0%. A good strategy might be to purchase shares and keep these till the Member has retired. This method will ensure that the capital gains are tax free.
For more information on account based pension, please see here:
Selecting which parcels of shares are sold
If an SMSF decides to sell a parcel of shares, the method used to select that parcel will affect the total capital gains tax that the Fund will need to pay.
Generally, there are four methods of selecting a parcel of shares for sale
The Most Tax Effective method is the default method that we use when we prepare a set of financial statements.
For more information regarding the completion of the annual return and the related capital gains schedule instruction, please see our taxation page: