How Owning an Investment Property in Super Differs from Owning One Outside Super: Tax Treatment Before and After Retirement

For many Australians, property remains a trusted pathway to long-term financial security. But when it comes to investing, where you hold your property—inside superannuation or in your personal name—can have a big impact on your financial outcomes, especially when it comes to tax.

This article explores how the tax treatment of property differs inside and outside of super, both before and after retirement. While we’re not here to offer financial advice, we aim to provide a clear, practical comparison that can help you make informed decisions aligned with your long-term goals.

Tax Treatment Inside Super

Accumulation Phase (Pre-Retirement) When you hold property within a Self-Managed Super Fund (SMSF) during your working years, the tax treatment is noticeably favourable. Rental income from the property is taxed at a flat 15%—well below most people’s personal income tax rates. This concessional rate can help your investment grow more efficiently over time.

Capital gains also receive beneficial treatment. If the property is held for more than 12 months, only two-thirds of the gain is taxable, resulting in an effective capital gains tax (CGT) rate of just 10%. This can make a meaningful difference in the compound growth of your assets over the long term.

Pension Phase (Post-Retirement) The benefits don’t stop once you retire. When you transition into the pension phase in retirement, the tax perks inside super become even more interesting. Rental income and capital gains from the property can be completely tax-free, provided the asset is supporting a retirement-phase pension. This pretty generous tax treatment is available on balances up to the transfer balance cap—currently set at $1.9 million—which sets a limit on how much can be moved into the retirement phase. While the rules here can be a bit technical, the core takeaway is that within this cap, the tax benefits can be substantial.

In other words, property held inside super not only enjoys low tax during your working life, but can potentially provide tax-free income in retirement—that sounds pretty good to us!

Tax Treatment Outside Super

So let's take a look at the other side of the coin. When a property is held outside of super, in your personal name, the tax rules are far less... generous. Rental income is taxed at your individual marginal tax rate, which can be as high as 47% for higher-income earners. This means a significant chunk of your rental earnings could be going to the tax office each year.

Capital gains on personal property are eligible for a 50% discount if the asset has been held for more than 12 months. However, the remaining half of the gain is still taxed at your marginal rate, which can still result in a hefty tax bill, particularly for those in higher tax brackets. The standard marginal rate starts at 19% for those earning $18,001 and goes up from there, so chances are, yes - your marginal rate is above the 15% tax rate within Super.

But what does the difference actually mean?

Let’s bring this to life by looking at two couples in their 50s—Emma and James, and Sarah and Tom. Both couples have invested in the same type of property, valued at $769,000. It earns them $595 a week in rent, which works out to roughly $30,940 per year. They each earn about $120,000 in salary, so they’re all in the 39% marginal tax bracket (including Medicare levy).

Emma and James: Property Inside Super - Pre- retirement

Emma and James purchased their investment property through their Self-Managed Super Fund. Because it’s held inside super during the accumulation phase, the rental income is taxed at a flat 15%.

For this quick blog post, we're going to simplify it and just look at the tax rate, not taking into account other avenues for tax minimisation inside of super, like depreciation - we're doing our best to not get too complex!

So from their $30,940 in annual rental income, the fund pays $4,641 in tax—leaving $26,299 to continue compounding within their super (simplified!).

If they decide to sell the property after holding it for more than 12 months, they’ll receive a one-third discount on the capital gain. Assuming a conservative gain of $200,000 over time, only $133,333 would be taxed—at 15%. That’s around $20,000 in CGT.

Sarah and Tom: Property Outside Super - Pre-Retirement

Sarah and Tom own the same property personally. Their $30,940 in rental income is added to their regular income and taxed at their marginal rate of 39%. That’s about $12,067 in tax on the rental income, leaving them with just $18,873 after tax—a noticeable drop compared to Emma and James.

If Sarah and Tom sell the property after a similar $200,000 capital gain, they get a 50% discount, but the remaining $100,000 is taxed at 39%, leaving them with a CGT bill of around $39,000.

Two Paths, Two Outcomes

Despite having identical properties and earnings, the tax difference between holding property in super versus outside is significant. Over the years, those differences compound—not just in tax saved, but in the extra investment income retained and reinvested.

The key takeaway? Where you hold your property can be just as important as the property itself. While both approaches have pros and cons, superannuation can offer a real advantage from a tax perspective. Ready to fast forward 10 years?

Looking Ahead: 10 Years Later in Retirement

Now let’s imagine, for the purpose of this comparison, both couples—Emma and James, and Sarah and Tom—are enjoying retirement. They’ve each owned their investment property for 10 years, and it’s done well. The average property they bought for $769,000 has now doubled in value to about $1.54 million. That’s a capital gain of roughly $771,000.

At this stage in life, they’re thinking about whether to keep the property as a source of rental income, or sell and use the funds for something else—maybe travel, helping the kids, or just simplifying things.

Emma and James (Property Held in Super)

Since their property is inside their Self-Managed Super Fund and now supports their retirement income, it benefits from some of the most generous tax rules available. Any rental income they receive from the property is completely tax-free. That’s over $30,000 a year, going straight into their retirement fund, untouched by tax.

If they decide to sell, it gets even better. Because the property is supporting a retirement-phase pension (within the $1.9 million cap), the entire capital gain of $771,000 could also be tax-free. They get to keep every cent of the gain—no CGT payable.

Sarah and Tom (Property Held Outside Super)

Sarah and Tom have the same property, the same capital gain—but a very different tax outcome. Even in retirement, they don’t receive the same tax breaks. Their rental income still counts as part of their personal taxable income. Depending on how much other income they’re drawing (like account-based pensions or part-time work), they could still be paying tax on that $30,000+ in rent each year.

If they decide to sell the property, they’ll trigger capital gains tax. Yes, they still get the 50% CGT discount for holding the asset more than 12 months, but the remaining gain—about $385,500—is taxed at their personal marginal rate. Even if they’ve scaled back their income in retirement, it could still mean tens of thousands in tax owed on the sale.

Same Property, Very Different Outcomes

Both couples bought smart and they've made a really good return. But because Emma and James held their property in super, they’re now enjoying both tax-free income and, should they choose to, a tax-free gain in retirement. Sarah and Tom, on the other hand, are still facing tax bills on both rental earnings and any capital gains if they sell.

It’s a simple but powerful example of how the structure around your investment can shape the outcome—especially when you’re no longer working and every dollar counts.

Key Takeaways to Consider

As we’ve seen through the stories of Emma and James, and Sarah and Tom, it’s not just the property itself that determines your outcome—it’s where you hold it that can make all the difference.

Holding a property inside super can offer serious tax advantages. In retirement, it could mean no tax at all on rental income or capital gains. Even before retirement, rental income is taxed at just 15%, and capital gains at an effective 10% after the discount. That’s a big contrast to paying 39% or more outside of super.

And what happens when you keep more of your investment income each year? You could put those savings to work—paying down the mortgage faster, saving thousands in interest, or reinvesting the extra cash to grow your retirement balance even more. Over time, that can accelerate your financial progress in a way that compounds year after year.

By comparison, property outside of super gives you more personal flexibility, but your returns can be heavily impacted by tax—both on your rental income and any profit when you sell.

There’s no universal right answer here. Super does come with rules, and personal ownership may suit people who need more access or control. But if your focus is long-term wealth building, especially for retirement, the tax efficiency of super can be a real head start.

At the end of the day, investing in property is about building your future—and how you structure that investment can play a huge role in the outcome.

Super might not offer the same flexibility as personal ownership, but when it comes to tax, it often punches well above its weight. From concessional rates during your working years to potentially tax-free income and capital gains in retirement, the long-term benefits can really stack up.

We’ve seen how two couples with identical properties ended up in very different financial positions, purely based on where the property was held. It’s a clear reminder that sometimes, the smartest move isn’t just about what you buy—but how and where you hold it.

As always, this is intended as general information in nature and it’s important to get personal advice before making any big financial decisions. But hopefully, this gives you a clearer picture of why property inside super is worth a closer look—especially if retirement planning is on your radar.