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 crypto currencies 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 crypto currency investments in the SMSF. We note there are a number of issues the Trustees of an SMSF need to consider before investing in crypto currencies.
The Trustees of an SMSF need to review the SMSF Trust Deed and Investment Strategy to ensure that crypto currency is an allowable investment of the Fund. The Trust Deed that we provide to our clients does not prohibit an SMSF from investing in crypto currencies. The Investment Strategy template that we provide specifically allows for investments in crypto currencies.
The Trustees of an SMSF need to ensure that the Fund has legal ownership over its assets. When registering a crypto currency 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, crypto currencies 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 crypto currency is treated as a CGT asset.
The Tax Office has issued several practical guidelines regarding the taxation treatment of crypto currency. An SMSF that is investing in crypto currencies may be subjected to capital gains tax rules when Trustees dispose of the crypto currencies as crypto currencies receives similar tax treatment as shares.
Although crypto currencies may be of similar nature as foreign currency, the Tax Office Determination (TD 2014/25) notes that crypto currency 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:
When opening up a Crypto trading account for your SMSF, consider using Digital Surge as a provider.
In recent news, due to the current FTX collapse, Digital Surge is currently blocking withdrawals. Thus, when investing in crypto, please ensure you are aware of the risks involved. Click here for more information on this news.
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 safely.
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 investment is Bitcoin. Please see here for more information on Bitcoin.