From my experience, the purchase of cryptocurrencies has been in a range of entities including individuals, trust, companies and self-managed super funds SMSFs. In this article I will focus on SMSFs however, please feel free to read my article How is cryptocurrency, like Bitcoin, treated for income tax in Australia?
Taxation on cryptocurrencies in self-managed super funds (SMSFs)
To my surprise, investors are purchasing cryptocurrencies without speaking to their accountants and financial advisors prior to making their investments in their SMSF, which can lead to disastrous tax consequences including making the fund non-compliant. While it is important to discuss with your trusted advisor which vehicle to purchase any new investments, I cannot stress enough the importance of discussing with your advisor your intent to begin investing in cryptocurrencies before making the purchase.
This is especially the case if making the purchase in your SMSF so you can ensure all rules are adhered to and that your fund remains compliant.
In short, the Australian Taxation Office ATO states you can invest in cryptocurrency however, it is when you read their SMSF investing cryptocurrencies guidelines that you will discover it is not as easy as you think. Firstly, you should read and interpret whether your SMSF trust deed allows you to even consider cryptocurrencies as an investment choice. Secondly, you may need financial advice to determine if it fits in within your investment strategy or alternatively you may need to alter your investment strategy.
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This should be in writing and reviewed regularly to ensure it continues to reflect the purpose and circumstance of your fund and its members. If you pass the two hurdles mentioned above, I think this can be the one that stumbles most investors. This includes ensuring the SMSF has clear ownership of the cryptocurrency. Want to diversify your portfolio? Get Started. High Risk Investment As an entirely new asset class and with huge volatility in price, cryptocurrencies are a high risk investment that could either result in huge returns or major losses.
Cryptocurrency Audits There is currently limited information from the ATO on how they govern cryptocurrencies as an asset class. Why Squirrel? Your Investment Dashboard See exactly how your investments are performing, simply by logging into your account.
Experienced With Crypto As well as experience helping our crypto investing clients through the audit process, we also have a number of team members that are well versed in cryptos as they invest in them personally. Benefits Of Crypto Investments Many of our new customers are choosing to invest in cryptocurrencies. Just as the internet was a revolution in the late 90s and early 00s , cryptocurrencies and blockchain technology is pioneering the way in which we share our information and money across the world. Many argue that this is a once in a lifetime opportunity to invest in the future.
Bitcoin and cryptocurrency investment in an SMSF
The primary difference is that cryptocurrencies are decentralised digital currencies, which means they have no political or geographical borders. In the absence of a central bank or administrator, cryptocurrency transactions take place directly between users without the need for a third party like a traditional bank. Following the early surge of Bitcoin, many SMSF investors are adding cryptocurrencies to their portfolios as an investment, rather than using it as a currency per se. Because of their decentralised nature, cryptocurrencies have many investors divided; SMSF trustees need to be aware of the risks and regulations of holding cryptocurrency in an SMSF.
With a Squirrel SMSF you can invest in cryptocurrencies.
The lack of defined return is divisive, with some investors arguing that crypto investments are inappropriate for SMSF, while others draw comparisons to gold and other traditional stores of value. The sole purpose of an SMSF fund is to provide retirement benefits to its members, or to their dependents, should its members die before retirement. Doing so would breach the sole purpose test. The wallet essentially acts as the address which transactions are sent between. An SMSF needs its own wallet, entirely separate to any that you may have in your name for personal cryptocurrency investing.
Any investments made into cryptocurrencies must be identified as belonging solely to the SMSF, and not mixed in with personal assets. As wallets are virtual and only identifiable via an IP address, it can be difficult for the fund to have the asset registered in any name. Trustees wanting to invest in cryptocurrencies need to make sure the auditors of the SMSF can identify the following:.
Any assets held by a super fund must be valued at market value.