Updated November 2026 for the 2026–27 income year.
An SMSF's tax bill is driven by three things: which expenses it can deduct, how its capital gains are discounted, and how much of its income is exempt because it supports retirement-phase pensions. The 2026 reforms left all three intact for super funds, but Division 296 now adds a personal tax layer for members with balances above $3 million. Here's what matters when preparing the 2025–26 return and planning 2026–27.
- SMSFs keep the one-third CGT discount. The abolition of the 50% discount under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 does not apply to complying super funds.
- Effective tax on gains from assets held 12 months or more: 10% in accumulation, 0% on assets supporting retirement-phase pensions.
- Tax-related expenses, the supervisory levy and death/disability premiums are deductible in full. Most other expenses must be apportioned once a pension is being paid.
- Division 296 applies from 1 July 2026: an extra 15% on earnings attributable to balances over $3 million, plus a further 10% above $10 million. It catches pension-phase earnings too.
- The Division 296 cost base reset election must be made by the due date of the fund's 2026–27 annual return.
What tax rates apply to an SMSF in 2026–27?
| Income type | Accumulation phase | Retirement phase |
|---|---|---|
| Rent, interest, dividends | 15% | 0% |
| Capital gain, asset held < 12 months | 15% | 0% |
| Capital gain, asset held 12 months or more | 10% effective (one-third discount) | 0% |
| Concessional contributions | 15% | n/a |
| Non-arm's length income (NALI) | 45% | 45% (never exempt) |
| Excess franking credits | Refundable | Refundable in full |
Super funds, SMSFs included, were carved out of both the CGT and negative gearing changes in the 2026 reform package. Because individuals and trusts lose the 50% discount from 1 July 2027, the gap between holding growth assets inside and outside super has widened. For the detail, see our article on the CGT discount overhaul.
Which SMSF expenses are deductible?
A complying SMSF can deduct expenses incurred in gaining assessable income, except where they are capital in nature or relate to exempt income. The key planning point is which deductions survive when the fund starts paying pensions.
| Expense | Treatment | Basis |
|---|---|---|
| Tax agent / tax return preparation fees | Deductible in full | s 25-5 |
| ATO supervisory levy ($259) | Deductible in full | s 25-5 |
| Actuarial certificate (ECPI) | Deductible in full | s 25-5 |
| Death and disability insurance premiums | Deductible in full | Subdiv 295-G |
| Audit, administration and accounting fees, bank fees | Deductible, apportioned if ECPI | s 8-1, TR 93/17 |
| Ongoing investment management and advice fees | Deductible, apportioned if ECPI | s 8-1 |
| Property costs: rates, repairs, LRBA interest, depreciation | Deductible against assessable income only | s 8-1, Divs 40 & 43 |
| LRBA borrowing costs | Spread over 5 years (or loan term if shorter) | s 25-25 |
| Establishment costs, deed changes to admit a member, initial strategy advice | Not deductible (capital) | — |
| Penalties, late lodgement fees, benefit payments | Not deductible | — |
How do you apportion expenses once a pension starts?
TR 93/17 accepts two methods for general expenses: multiply by the assessable portion from the actuarial certificate (100% minus the exempt percentage), or use the ratio of assessable income to total income. Choose one and stay with it, because the ATO expects a reason for switching. Expenses tied to a particular asset follow that asset's income.
If every member is in retirement phase, general running costs become non-deductible. Only the s 25-5 items and insurance premiums are left. Two practical points follow:
Have invoices itemised. A single "annual compliance" invoice hides the tax-related component that is deductible in full. Ask for return preparation, tax advice and the actuarial certificate to be billed separately from accounts and audit.
Don't strand the deductions. Excess deductions in a fully exempt fund are wasted. If a large deductible outlay is coming (repairs, for example), it is worth more in a year when the fund still has assessable income.
How does the one-third CGT discount work inside an SMSF?
Where a fund holds an asset for at least 12 months, one-third of the net gain is disregarded. That takes the effective rate from 15% to 10%. Capital losses are applied before the discount, and the fund chooses which gains to offset them against.
The main levers:
Apply losses to non-discount gains first. Offsetting a loss against a gain on an asset held less than 12 months preserves the discount on the long-term gain.
Watch the 12-month line. Selling a week early costs a third of the discount.
Defer large disposals into pension phase. A gain realised after a retirement-phase pension starts is fully or partly exempt. This is usually the biggest single saving available.
Carry losses forward deliberately. Net capital losses carry forward indefinitely. However, losses on segregated pension assets are disregarded, so they can't be used later.
Worked example: a $120,000 gain on shares held three years
| Fund position at sale | Taxable amount | Tax | Effective rate |
|---|---|---|---|
| 100% accumulation | $80,000 | $12,000 | 10% |
| Mixed fund, 60% exempt per actuary | $32,000 | $4,800 | 4% |
| 100% retirement phase | $0 | $0 | 0% |
The figures are illustrative and ignore Division 296, covered below.
What are the pension phase tax benefits, and what conditions apply?
Income and gains on assets supporting retirement-phase income streams are exempt current pension income (ECPI). The exemption depends on four conditions:
Transfer balance cap. From 1 July 2026 the general cap is $2.1 million. A member who started a pension earlier has a lower personal cap, because indexation applies only to the unused portion of the cap. Amounts above the cap stay in accumulation and are taxed at 15%.
Minimum drawdowns. If the minimum isn't paid, the income stream generally stops being a pension for tax purposes for that year, and the fund loses the exemption on it. The ATO allows limited self-correction for small, genuine underpayments.
TTRs. A transition-to-retirement pension is not in retirement phase until the member meets a full condition of release, such as turning 65 or retiring. Until the trustee records and reports the change, its earnings are taxed at 15%.
The correct ECPI method. See the next section.
| Age at 1 July (or at commencement) | Minimum annual payment |
|---|---|
| Under 65 | 4% |
| 65–74 | 5% |
| 75–79 | 6% |
| 80–84 | 7% |
| 85–89 | 9% |
| 90–94 | 11% |
| 95 or older | 14% |
Segregated or proportionate: which ECPI method applies?
Segregated method. If all fund assets support retirement-phase pensions, or assets are formally segregated for pensions, income from those assets is exempt. No actuarial certificate is needed where only account-based pensions are paid. Gains and losses on segregated assets are disregarded.
Proportionate method. In a fund with both accumulation and pension interests, the exempt percentage comes from an actuarial certificate and is applied to the fund's assessable income, including net capital gains.
Disregarded small fund assets. If any member with a retirement-phase interest had a total super balance above $1.6 million on the previous 30 June, the fund must use the proportionate method for the whole year. This threshold is not indexed.
Electing proportionate for the whole year. Since 2021–22, a fund that was fully in pension phase for only part of the year can choose the proportionate method for the full year. This can preserve capital losses that segregation would otherwise disregard.
Optimisation point: where possible, time major disposals for a period when the fund is wholly in retirement phase, and start pensions before a planned sale rather than after it.
How does Division 296 change the picture for large balances?
Division 296 passed Parliament on 10 March 2026 and applies from the 2026–27 income year. It is a personal tax, assessed to the member rather than the fund:
an extra 15% on the share of earnings attributable to a total super balance (TSB) above $3 million
a further 10% (25% in total) on the share attributable to a TSB above $10 million
both thresholds are indexed, in increments of $150,000 and $500,000 respectively.
How earnings are calculated. Division 296 earnings are based on realised income only; unrealised gains were removed from the final law. For an SMSF, the starting point is taxable income. ECPI is added back, contributions are excluded, and capital gains count after the one-third discount. In practice, pension phase doesn't shelter a member above $3 million from Division 296.
When balances are tested. For 2026–27, only the TSB at 30 June 2027 counts. From 2027–28, the higher of the opening and closing balance is used. That makes 2026–27 the one year in which reducing a balance before 30 June fully removes the exposure.
Worked example
Margaret's TSB is $4.5 million at 30 June 2027, and $250,000 of Division 296 earnings are attributed to her.
Share of her balance above $3 million: ($4.5m − $3m) ÷ $4.5m = 33.3%
Earnings subject to Division 296: $250,000 × 33.3% = $83,333
Division 296 tax: $83,333 × 15% = $12,500, payable personally or released from super.
Should the fund make the cost base reset election?
An SMSF can elect to reset the cost base of all CGT assets it held at the end of 30 June 2026 to their market value on that date. The reset applies for Division 296 purposes only; the fund's ordinary CGT cost bases don't change. Its key features:
It is all-or-nothing and irrevocable. Assets carrying losses are reset down, which increases future Division 296 earnings when they are sold.
It is available to any SMSF, even if no member is above $3 million today.
It is made on an ATO approved form by the due date of the fund's 2026–27 annual return. That date is 31 October 2027 for self-lodgers and 15 May 2028 for most funds lodging through an agent. Lodging the 2025–26 return late can bring the deadline forward.
It needs two sets of cost base records from now on, supported by defensible 30 June 2026 valuations, particularly for property and unlisted assets.
What changed for SMSF property in 2026?
From 10 August 2026, a new LRBA over real property must be for business real property. Residential LRBAs entered into before that date are grandfathered, and so are contracts exchanged before it. Refinancing a grandfathered loan is still permitted. Interest on those loans remains deductible against assessable rent, apportioned once the property supports a pension. The negative gearing restrictions in the 2026 reforms don't apply to super funds. See our article on the SMSF residential borrowing ban.
SMSF tax return checklist for 2025–26 and 2026–27
Separate s 25-5 expenses and insurance premiums from general expenses, and apportion only the latter.
Confirm the minimum pension was paid for every income stream before 30 June.
Check each member's TSB at the previous 30 June against $1.6 million to settle the ECPI method.
Order an actuarial certificate if any part of the year used the proportionate method, and consider whether electing it for the full year preserves losses.
Apply capital losses to non-discount gains first.
Review related-party arrangements for non-arm's length expenses, especially on property.
Lodge the 2025–26 return on time to protect the Division 296 election deadline.
For members near or above $3 million, model the cost base reset and the 30 June 2027 balance before year end.
Frequently asked questions
Do SMSFs lose the CGT discount under the 2026 tax reforms?
No. The replacement of the 50% discount with cost base indexation and a 30% minimum tax applies to individuals, trusts and partnerships from 1 July 2027. Complying super funds keep the one-third discount.
Is the SMSF supervisory levy tax deductible?
Yes. The $259 annual levy is a tax-related expense under s 25-5 and is deductible in full, even when the fund is entirely in pension phase.
Can an SMSF claim deductions if all members are in pension phase?
Only in part. Tax-related expenses and death or disability premiums remain deductible. Audit, administration and investment expenses relate to exempt income and are not deductible.
When does an SMSF need an actuarial certificate?
When it uses the proportionate method for any part of the year. That means the fund had accumulation and retirement-phase interests at the same time without segregation, or it has disregarded small fund assets.
Does Division 296 apply to pension phase earnings?
Yes. ECPI is added back when calculating Division 296 earnings, so a member above $3 million is taxed on the attributable share regardless of phase.
What happens if an SMSF misses the minimum pension payment?
The income stream generally isn't treated as a retirement-phase pension for that year. Earnings on the supporting assets lose the exemption, and payments are treated as lump sums. Limited ATO self-correction is available for small, genuine shortfalls.
This article is general information current at November 2026 and is not personal advice. If your fund has members approaching the $3 million threshold, or you need help with the cost base reset decision, talk to us.