A power electronic-based smart substation should be developed to manipulate multifunctional operations, not only providing power supply and island operations but also manipulating power quality issues. This paper proposes a capacitive LC-coupling multifunctional inverter integrated with a primary tapped transformer (MFI-PTT) in a smart substation. The proposed MFI-PTT provides voltage support with island mode during a critical system disturbance or failed grid. In a normal condition, it ensures the active power transfer and current quality compensation. The operational mechanisms of multiple modes and power rating reduction analysis are mathematically revealed, further determining the required dc voltage, power rating, and power loss of converter. Furthermore, a comprehensive compensation control strategy based on multiple conditions is developed to perform different operational modes and their transitions with the consideration of the available capacity. Finally, the simulation and experimental results are presented to prove the effectiveness of the proposed MFIPTT on multifunctional operation performance and inverter rating reduction.