Cryptocurrency is a type of unregulated, digital money in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Bitcoin is one of the most popular cryptocurrencies and it has increased in value rapidly in recent years.
So far, there are not yet any formal rulings or publications from the ATO clarifying how the rules apply to cryptocurrency investments in the SMSF. We note there are a number of issues the Trustees of an SMSF need to consider before investing in cryptocurrencies.
Trust Deed and Investment Strategy
The Trustees of an SMSF need to review the SMSF Trust Deed and Investment Strategy to ensure that cryptocurrency is an allowable investment of the Fund. The Trust Deed that we provide to our clients does not prohibit an SMSF from investing in cryptocurrencies. The Investment Strategy template that we provide specifically allows for investments in cryptocurrencies.
Ownership and Valuation
The Trustees of an SMSF need to ensure that the Fund has legal ownership over its assets. When registering a cryptocurrency wallet with the currency provider, Trustees need to ensure that the wallet is under the name of the SMSF.
Like all assets in the Fund, cryptocurrencies must be disclosed at market value at year end on the SMSF Financial Statements and Tax Return. The unrealised gains or losses will not be taxed as cryptocurrency is treated as a CGT asset.
Taxation
The Tax Office has issued several practical guidelines regarding the taxation treatment of cryptocurrency. An SMSF that is investing in cryptocurrencies may be subjected to capital gains tax rules when Trustees dispose of the cryptocurrencies as cryptocurrencies receive similar tax treatment as shares.
Although cryptocurrencies may be of similar nature to foreign currency, the Tax Office Determination (TD 2014/25) notes that cryptocurrency is considered to be foreign currency for the purposes of Division 775 of the Income Tax Assessment Act 1997. For more details, we’ve included the ATO guidelines here for your reference:
1. HardBlock
When opening up a Crypto trading account for your SMSF, you can also consider using HardBlock as a provider.
When investing in crypto, please ensure you are aware of the risks involved.
Trustees should consider the risks of keeping cryptos on online trading accounts or digital wallets. The biggest danger in crypto security is possibly losing your private key or having your private key stolen. Without the private key, it’s likely that investors can never recover their crypto investments. Besides losing the private key, Trustees can also lose their cryptos by computer malfunctions (crashing a hard drive), hacking, or by physically losing a computer where the digital wallet resides. Thus, please ensure you keep your digital key safe.
2. Coinstash
Exclusive Offer for SMSF Warehouse Clients: Get a $200 Bitcoin welcome bonus when you sign up and create an SMSF account on Coinstash!
Coinstash is Australia’s leading crypto SMSF investment platform, designed to make crypto SMSF investing simple, compliant, and efficient. Here’s why Coinstash is the preferred choice for SMSF investors:
Same-Day Onboarding: Get started quickly with personalised onboarding consultations and same-day account setup.
1,000+ Coins Listed: Build your SMSF portfolio with access to the largest variety of coins in Australia.
Portfolio Tracking: Monitor your SMSF investments with real-time market updates and an easy-to-use tracking interface.
Tax-App Integrations: Seamlessly sync your transactions with leading third-party crypto tax apps for hassle-free reporting.
Detailed EOFY Reports: Receive comprehensive transaction reports to ensure your SMSF remains fully compliant.
Independently Audited: Coinstash engages independent external auditors to review our financial statements annually in compliance with Australian Accounting Standards.
Accounting Fees
For Funds with cryptocurrency investments, we charge an extra fee of $350 in addition to the monthly/annual fees. The main reason for this is there are extra complications involved and the external auditor that we engage to audit the Fund spends more time to complete the audit. For more information on our fee schedule, please see this page.
One of the popular cryptocurrency investments is Bitcoin. Please see here for more information on Bitcoin.
FAQs about Crypto (click on the question to reveal the answer)
- Stable Coins - Pegged to a physical currency such as the USD or Euro
- Meme Coins - A type of cryptocurrency that relies on humour and the promise of a fun community to attract users
- Payment Coins - The sole purpose is to facilitate payments e.g. Bitcoin is a payment coin
- Utility Tokens - Allow other crypto assets to piggyback off their blockchain e.g. Etherium and Solana
A: A wrapped token in cryptocurrency is a digital asset that represents another cryptocurrency, usually on a different blockchain, by linking it’s value 1:1 to the original asset. For example Wrapped Bitcoin (WBTC) on Ethereum-based applications.
When a crypto asset is wrapped, it is an exchange of one crypto asset for another and it results in a CGT event. This is because the owner is giving up the rights from the original crypto. When the crypto is unwrapped, it will trigger another CGT event. The value change for these events would trigger a capital gain or loss that needs to be reported and taxed.
When opening a new bank account, make sure to select a bank that allows Crypto investments. We understand that Banks are becoming more restrictive with Cryptocurrency transactions. We note that currently, the least restrictive Banks for Cryptocurrency transactions are ANZ and Commonwealth Bank.
In1bank is a neobank partnered with Coinstash. If you plan to solely use Coinstash for cryptocurrency investments, you could consider opening an account with In1Bank. They do not impose restrictions on daily deposit amounts; However, transfers from In1Bank are only permitted to Coinstash for crypto investment purposes.
