Superannuation Fund Taxable Income Method Statement

Sources:

• How SMSFs are taxed | Australian Taxation Office
• ECPI traps with pension tax strategies – SMSF Adviser
• Section E: Losses (item 14) | Australian Taxation Office
• M1 Tax losses deducted | Australian Taxation Office

SMSF Taxable Income Calculator User Guide

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What this calculator does

This calculator works through the steps needed to arrive at the taxable income of a self-managed superannuation fund (SMSF) for an income year. It does not calculate tax payable. Its purpose is to organise and total the fund’s assessable income, deductions, and carried-forward losses so the taxable income figure is ready to take into the tax calculation.

The calculator also produces two separate carried-forward loss balances — one for revenue (tax) losses and one for net capital losses — because these are different legal categories that must be tracked and reported independently. This is covered in detail in the Losses section below.

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How to use the calculator

Work through the six steps in order. Every field defaults to zero, so you only need to enter figures that apply to your fund. The results update automatically as you type.

Step 1 — Assessable Income

Enter each category of ordinary investment income the fund derived during the year. All amounts should be the gross figures before deductions.

Field	What to enter
Interest & Cash Earnings	Interest on bank accounts, term deposits, bonds, and similar cash-based returns
Dividends	Cash dividends from Australian and foreign shares
Franking Credits	Imputation credits attached to franked dividends. These are included in assessable income and may later generate a tax offset
Trust & Managed Fund Distributions	Income distributions from unit trusts, managed funds, and similar structures, including any capital gains component passed through to the fund
Net Rental Income	Gross rental receipts minus directly related property expenses (rates, repairs, property management fees, etc.)
Other Assessable Income	Foreign income, foreign income tax offsets brought to account, and any other assessable amounts not covered above

Note on franking credits. Under the imputation system, franking credits are part of assessable income. They are included here as an income item. The credit itself is then applied as an offset against the fund’s tax liability in a separate step outside this calculator. If credits exceed the tax otherwise payable, the excess is refundable to a complying fund.

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Step 2 — Net Capital Gains

Capital gains and capital losses are handled through the CGT provisions and feed into assessable income as a net amount. The calculator keeps three separate inputs so the net figure can be traced.

Field	What to enter
Gross Capital Gains	The total of all capital gains made on assets sold or otherwise disposed of during the year, before applying any losses or discount
Current Year Capital Losses	Capital losses realised during the current income year
Capital Losses Brought Forward	Net capital losses carried forward from prior years. This is the closing balance from the fund’s capital loss schedule for the previous year
CGT Discount	The CGT discount amount applicable to eligible gains. For a complying SMSF in accumulation phase, a one-third discount applies to gains on assets held for more than 12 months. The discount is not available in respect of assets supporting retirement-phase pensions

How the net capital gain is calculated:

The calculator applies capital losses (current year plus brought-forward) against gross gains first, then subtracts the CGT discount from the remaining gain. The result is the net capital gain added to assessable income. If total capital losses exceed gross gains, the net capital gain is nil — the excess forms part of the capital losses carried forward balance shown in the results.

Important. Capital losses cannot reduce ordinary assessable income. They can only be offset against capital gains, either in the current year or in future years. This is why capital losses and revenue losses are tracked in separate buckets throughout the calculator. See the Losses section below.

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Step 3 — Other Assessable Amounts

These are one-off or irregular amounts that are assessable under tax law but do not fit the ordinary income categories above.

Field	What to enter
Assessable Insurance Proceeds	Insurance amounts that are assessable income to the fund under the income tax law. For example, certain income protection proceeds or amounts that are not otherwise exempt
Income Adjustments	Reversals of prior year deductions that were over-claimed, or other upward adjustments required by the ATO or identified in a review

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Step 4 — Deduct Allowable Expenses

Enter the fund’s deductible expenses for the year. Only amounts that are genuinely incurred in producing the fund’s assessable income are deductible. Expenses incurred in deriving exempt current pension income (ECPI) are not deductible and must be excluded or apportioned before entry.

Field	What to enter
Administration & Management Costs	Trustee fees, SMSF administration fees, audit fees, ATO supervisory levy, accounting fees for preparing the fund’s accounts and return
Investment & Adviser Fees	Investment management fees, brokerage on fund investments, financial adviser fees charged to the fund
Insurance Premiums	Premiums for death, total and permanent disability, or income protection insurance held in the fund’s name and deductible under the ITAA 1997
Interest on Borrowings	Interest on a limited recourse borrowing arrangement (LRBA) where the borrowed money was used to acquire an income-producing asset
Other Deductible Expenses	Any other expenses allowable as a deduction under the income tax law

ECPI apportionment. Where the fund has members in both accumulation and retirement phase, expenses that relate to both accumulation and pension assets must be apportioned. Only the portion attributable to producing assessable income is deductible. The apportionment method (asset-based, income-based, or another reasonable method) should be determined before entering figures in this step.

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Step 5 — Carried-Forward Revenue Losses and ECPI

This step applies to revenue (tax) losses only. Capital losses brought forward are entered in Step 2 and tracked separately.

Field	What to enter
Revenue Losses Brought Forward	The closing balance of the fund’s revenue tax loss schedule from the prior year — the amount of tax losses that had not yet been recouped as at the end of that year
Net Exempt Current Pension Income (ECPI)	The fund’s net exempt pension income for the current year. This figure must be used to reduce any carried-forward revenue loss before it can be applied against assessable income

Why ECPI reduces carried-forward revenue losses. Division 36 of the Income Tax Assessment Act 1997 (Cth) requires that net exempt income be subtracted from an apparent tax loss before any amount is available to carry forward or deduct. For an SMSF in pension phase, ECPI is the main source of net exempt income. This means a fund that is heavily or fully in pension mode may find that its carried-forward revenue loss is significantly reduced, or eliminated entirely, once ECPI is taken into account. This rule does not affect capital losses, which remain a separate CGT-only balance.

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Step 6 — Result

The result panel shows:

• Taxable Income — the fund’s taxable income for the year, being total assessable income less allowable deductions less revenue losses applied (all floored at nil)
• Revenue Tax Loss This Year — shown instead of taxable income if the current year produces a revenue loss (deductions exceed assessable income after ECPI). Taxable income is nil in this case
• Total Assessable Income — the sum of Steps 1–3
• Total Deductions — the sum of Step 4 expenses
• Revenue Losses Carried Forward — the closing balance of the fund’s revenue tax loss schedule, ready for entry as “Revenue Losses Brought Forward” next year
• Capital Losses Carried Forward — the closing balance of the fund’s capital loss schedule, ready for entry as “Capital Losses Brought Forward” in Step 2 next year

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How the results are calculated

Taxable income

Total assessable income

= Ordinary assessable income (Step 1)

+ Net capital gain (Step 2, after losses and discount)

+ Other assessable amounts (Step 3)

Taxable income

= Total assessable income

− Allowable deductions (Step 4)

− Revenue losses applied (Step 5, after ECPI reduction)

Taxable income cannot fall below nil.

Current year revenue tax loss

If allowable deductions exceed total assessable income, the fund has an apparent loss. The formula under Division 36 ITAA 1997 is:

Tax loss = (Allowable deductions − Assessable income) − Net exempt income (ECPI)

If this result is positive, the fund has a current-year tax loss available to carry forward. If it is zero or negative, there is no current-year tax loss.

Revenue losses carried forward

Closing revenue losses carried forward

= Revenue losses brought forward

− Net ECPI (reduces the pool before application)

− Revenue losses actually deducted this year

+ Current year tax loss (if any)

This formula follows the ATO’s instructions for the SMSF annual return, which state that tax losses carried forward to later income years consist of the fund’s current-year tax loss plus prior-year tax losses to the extent they have not previously been utilised.

Capital losses carried forward

Capital losses available this year

= Capital losses brought forward + Current year capital losses

Capital losses used this year

= min(available losses, gross capital gains)

Closing capital losses carried forward

= Capital losses available − Capital losses used

Any unused capital losses carry forward to the next year. They cannot reduce assessable income and are not affected by ECPI.

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Why Are Revenue Losses and Capital Losses Kept Separate?

Revenue tax losses and capital losses are separate legal categories. They are calculated differently, applied differently, and reported separately on the SMSF annual return.

Revenue tax losses arise when allowable deductions exceed assessable income. They are calculated under Division 36 ITAA 1997 and, once adjusted for ECPI, can be deducted against assessable income in a future year (subject to the fund having sufficient income to absorb them).

Net capital losses arise when capital losses exceed capital gains for the year. They are calculated through the CGT provisions and can only ever be applied against future capital gains — they cannot reduce ordinary assessable income. This constraint is one of the main reasons the two types of loss must be tracked in separate schedules.

The ATO SMSF annual return requires trustees to report each type separately. Tax losses are disclosed at label U and net capital losses at label V in Section E of the return. Keeping a single combined figure would produce incorrect tax outcomes and would not reconcile to the return.

A practical record-keeping approach is to maintain two continuity schedules in the fund’s working papers:

Revenue tax loss schedule

	Amount
Opening balance (losses brought forward)
Add: Current year tax loss (if any)
Less: ECPI applied to reduce the pool
Less: Tax losses deducted this year
Closing balance (losses carried forward)

Capital loss schedule

	Amount
Opening balance (net capital losses brought forward)
Add: Current year capital losses
Less: Capital losses applied against gains this year
Closing balance (net capital losses carried forward)

The closing balances from each schedule flow directly into the following year’s calculator entries — Revenue Losses Brought Forward in Step 5, and Capital Losses Brought Forward in Step 2.

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Key rules and limitations

Taxable income floor. Taxable income cannot be negative. If deductions and losses together exceed assessable income, taxable income is nil and any remaining excess becomes part of the revenue losses carried forward.

Revenue losses limited to available income. Prior-year revenue losses can only be deducted to the extent that total assessable income exceeds total deductions (other than the losses themselves). The calculator applies this cap automatically.

Capital losses cannot offset ordinary income. Capital losses, whether current year or brought forward, can only reduce capital gains. They are not available as a deduction against interest, dividends, rent, or other ordinary income.

ECPI affects revenue losses, not capital losses. The ECPI reduction applies only to the revenue loss pool. Capital losses carried forward are not reduced by ECPI.

CGT discount — accumulation phase only. The one-third CGT discount for assets held more than 12 months is available in accumulation phase. It is not available for assets that are wholly or partly supporting retirement-phase pensions. Where the fund has both accumulation and pension members, the discount must be apportioned before the discounted amount is entered in the calculator.

This calculator does not apportion for pension phase. The apportionment of income and expenses between accumulation and retirement phase (for example, under the ATO’s segregated or proportionate method) must be done separately before figures are entered. The calculator operates on the assessable income and deductible expense figures after any required apportionment.

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Definitions

Assessable income. Income that is included in the calculation of taxable income under the income tax law. Exempt income (such as ECPI) is not assessable income.

CGT discount. A reduction applied to a capital gain on an asset held for more than 12 months. For complying SMSFs in accumulation phase the discount is one-third (33.33%). The discount reduces the gain after capital losses have been applied.

ECPI (Exempt Current Pension Income). Income derived from assets that support retirement-phase (account-based) pensions paid by the fund. ECPI is excluded from assessable income. Under Division 36 ITAA 1997, net exempt income (including ECPI) must be used to reduce a revenue tax loss before any amount is available to carry forward.

Limited recourse borrowing arrangement (LRBA). A borrowing by an SMSF to acquire an asset, structured so that the lender’s recourse in the event of default is limited to the acquired asset. Interest on an LRBA used to acquire an income-producing asset is generally deductible.

Net capital gain. The amount remaining after applying capital losses (current year and brought forward) and any available CGT discount to gross capital gains. If losses exceed gains, the net capital gain is nil and the excess forms a net capital loss carried forward.

Net capital loss. The amount by which capital losses exceed capital gains in a year. Net capital losses can only be applied against future capital gains — not against ordinary assessable income.

Revenue (tax) loss. An excess of allowable deductions over assessable income, calculated under Division 36 ITAA 1997 and reduced by any net exempt income. Revenue losses can be deducted against assessable income in future years, subject to availability.

Taxable income. The amount on which income tax is calculated. For a complying SMSF it is broadly total assessable income less allowable deductions less deductible carried-forward revenue losses, floored at nil.

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Disclaimer

This guide and the accompanying calculator are provided for general information purposes only and do not constitute tax advice. The rules that apply to SMSFs are complex and depend on the fund’s specific circumstances, including its membership profile, the nature of its assets and income, and any elections or choices made under the tax law. Tax laws also change.

Always confirm the fund’s tax position with a registered tax agent or SMSF specialist adviser before lodging the annual return or making distributions. The trustees remain responsible for the accuracy of the return.

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This page was last modified 2026-06-10