Decrypting Crypto for SMSFs
Cryptocurrencies, such as BitCoin or Ethereum, have seen a massive increase in investments over the past few years. With current global economic uncertainty, it isn’t surprising that many SMSF trustees are turning away from traditional investments and looking to cryptocurrencies to bolster their superannuation savings.
While you are permitted to invest in cryptocurrencies via your SMSF, there are a few factors to be mindful of to avoid any potential audit issues.
First and foremost your investment strategy should state the SMSF is permitted to invest in cryptocurrency. You are able to stipulate a limitation on the amount the fund may invest or keep it general to allow for flexibility.
As with any investment, you need to ensure all SMSF assets are maintained separately from any personal or business assets, and that they are held in the name of the SMSF. For crypto trading, we recommend opening a new wallet with your chosen platform/exchange strictly for your SMSF. This way you can easily demonstrate correct ownership structure and separation of assets when required for the auditor.
Although traded on a exchange similar to shares, the ATO does not consider any cryptocurrency to be a “listed security”. This means that you are restricted from purchasing or transferring existing holdings from yourself or any related party. All acquisitions need to come from an independent source – be it from an exchange or similar market. If you are looking at mining directly using and SMSF, we recommend you speak to a specialist tax lawyer prior to proceeding.
In line with provisions around any investment within your SMSF, you will need to ensure your crypto holdings are independently valued at their market rate. The ATO has stated that prices shown on any reputable exchange at 30 June each year meets this regulation. If you do not receive your own valuation, we are happy to confirm them on your behalf.
The ATO have issued two taxation determinations confirming that cryptocurrency is classed as a CGT asset rather than money. In simple terms, any profit you make on buying and selling cryptocurrency is subject to capital gains tax. Likewise any losses will be used to offset any capital gain.
Luckily we have had plenty of experience with SMSFs investing in cryptocurrency! if there is anything you are unsure on, or require assistance with, we are more than able to help!