Listed shares are the largest single Asset Class held by self-managed super funds, making up around 26 per cent of the roughly $1.06 trillion held across Australia’s SMSFs. For trustees sitting on well-performing parcels bought years ago, the decision of when to sell is rarely just about the market. Realising a share gain inside an SMSF while the fund is still in accumulation can attract an effective 10 per cent tax, while realising the same gain once the shares support a retirement-phase pension can attract nothing. But the outcome is not as simple as flicking a switch. The method the fund uses to calculate its tax exemption, and the transfer balance cap, both shape the result.

 

The 15 per cent versus 0 per cent divide

In accumulation phase, a complying SMSF pays 15 per cent on earnings, and capital gains on shares held more than 12 months receive a one-third CGT discount, giving an effective 10 per cent rate. Shares held for 12 months or less get no discount, so the gain is taxed at the full 15 per cent.

Once shares support a retirement-phase income stream, Earnings and capital gains become Exempt Current Pension Income (ECPI) and are taxed at 0 per cent. So the question of whether a share parcel is sold before or after a pension commences can move the tax on the gain from an effective 10 per cent to zero — but only to the extent the fund is genuinely in retirement phase when the gain is realised.

 

Segregated versus proportionate: the method matters

How much of a share gain actually escapes tax depends on how the fund works out its ECPI, and there are two methods.

Under the segregated method, specific Assets are set aside to support retirement-phase pensions. A Capital Gain on a segregated pension asset is fully exempt; a gain on a segregated accumulation asset is fully taxable. Timing a share sale is comparatively clean here, because each asset is clearly tied to one phase or the other.

Under the proportionate (unsegregated) method, all assets are pooled and an actuary certifies the proportion of the fund’s income that is exempt, based on the average value of retirement-phase liabilities over the year. A share gain is then only partly exempt — in line with that exempt proportion — regardless of the day it is sold. A fund that is, say, 70 per cent in retirement phase would have roughly 70 per cent of a share gain exempted and 30 per cent taxed.

This distinction is easy to overlook. Trustees who assume a gain will be entirely tax-free because “the fund is in pension” may find, under the proportionate method, that only a slice of the gain avoids tax. Larger funds and those with mixed balances often operate on the proportionate basis.

 

The transfer balance cap: gains above the cap stay in accumulation

The 0 per cent environment is capped. A member’s transfer balance cap limits how much capital can be moved into retirement phase. The general cap was $2 million in 2025–26 and was indexed to $2.1 million from 1 July 2026. Anyone who had already started a retirement-phase pension before that date may have a lower personal cap, because proportional indexation gives a smaller top-up to those who have already used part of their cap.

Amounts above a member’s personal cap cannot support a pension and generally remain in accumulation, where share gains continue to be taxed at an effective 10 per cent. A member with a large share portfolio may therefore have some parcels supporting a tax-free pension and others left in accumulation simply because there was no cap space left to shelter them.

 

A hypothetical illustration

For illustration only: Marika, aged 63 and retired, holds two share parcels in her SMSF. Parcel A, held for several years, has a $150,000 embedded gain; parcel B, bought eight months ago, has a $60,000 gain.

If parcel A were sold in accumulation, the one-third discount would leave $100,000 assessable at 15 per cent — about $15,000. Parcel B, held under 12 months, would attract no discount, so its $60,000 gain would be taxed at 15 per cent — about $9,000.

If Marika’s fund were fully in retirement phase under the segregated method and both parcels were within her transfer balance cap, both gains could fall within ECPI at 0 per cent. Under the proportionate method, only the exempt proportion certified by the actuary would be free of tax. This example ignores franking credits, expenses and other income, and is not advice to act.

 

What SMSF trustees weigh up

Selling shares to lock in a gain exposes the fund to Reinvestment Risk and to market movements while a pension is being arranged. A member must also have met a condition of release before a retirement-phase pension can start. Capital losses, prior-year losses and the fund’s overall income position all interact with any gain. Because the method of calculating ECPI and the available cap space differ from fund to fund, the same share sale can produce quite different outcomes for two trustees.

 

Key Takeaway

For SMSF shares held more than 12 months, a capital gain is taxed at an effective 10 per cent in accumulation but can be 0 per cent in retirement phase. How much of a gain is exempt depends on whether the fund uses the segregated or proportionate ECPI method, and the transfer balance cap — $2 million in 2025–26, indexed to $2.1 million from 1 July 2026 — means gains on amounts above a member’s cap stay in accumulation. Whether shares are sold before or after a pension commences can therefore matter, but the detail is fund-specific. This is general information only.