HOW TO INVEST IN CRYPTOCURRENCY FOR YOUR SMSF
Investors are always looking for new and unconventional ways to make money and investing in cryptocurrency through a self managed super fund is starting to gain popularity.
SMSFs have boosted their investment in cryptocurrency as it has become increasingly profitable. As of September 2021 cryptocurrency still represents under 1% of all superannuation investments but is growing very fast.
Because of its speculative and decentralised nature, the ATO has been keeping a close eye on the investment. The investment will be subject to regulatory and tax requirements, which will be enforced by the ATO. Before you decide to invest in cryptocurrency in your SMSF account, here is a list of items to consider.
Cryptocurrency was defined for tax purposes in 2014 by the ATO in two tax decisions (TD 2014/25 and TD 2014/26). A cryptocurrency is classified as a “CGT Asset” by the Income Tax Assessment Act of 1997. Investors applauded these actions. Due to a misunderstanding, this investment was treated as a “foreign currency,” resulting in a higher tax rate.
You’re in charge of your superannuation account or SMSF (self managed super fund). To the extent that you profit from the sale of your crypto holdings, you’ll be subject to capital gains tax (CGT). A loss of capital event will commence if unit sales are not profitable.
The fees you spend when trading crypto should be deducted from the base cost of the item you’re trading because they are not tax deductible expenses. When selling the SMSF cryptocurrency Australia when its members are in their retirement period, they will not be taxed on any capital gains they acquire (Transfer Balance Cap reliant) (Transfer Balance Cap dependant).
An Investment Plan with a Trust Deed
The trust deed of the SMSF must allow for the use of digital currency. A valuable asset is a cryptocurrency-based self-managed super fund. A new trust deed or amendments to the existing one may be necessary by the fund’s trustees.
The SMSF can invest in any other form of asset that is permitted under the trust deed. Because SMSFs recognise cryptocurrencies as genuine assets, you don’t have to be concerned about this impacting your SMSF. It’s not required to alter your deed. You can also invest in property, shares, metals, artwork and classic cars to name a few different asset classes!
To guarantee that smsf crypto is taken into consideration when reviewing the fund’s investment strategy, this must be assessed and, if necessary, amended.
An SMSF must also examine the dangers and liquidity of investing in crypto due of its extreme volatility.
For SMSFs, the value of their assets must meet with ATO requirements. According to the ATO, the best location to get your SMSF cryptocurrency value at the end of June is from a reliable digital currency exchange that posts historical cryptocurrency prices. This is because cryptocurrency values change on a daily basis (i.e., CoinSpot, Swyftx)
Ownership has been established
Cryptocurrency can be exchanged and stored digitally at an address known as a wallet.
It is mandated that the crypto wallets of SMSFs be maintained separate from those of its members.
A virtual wallet’s IP address is the lone means to locate it, further complicating matters. Even if the investment is in the name of an SMSF, it may be difficult to register the investment under a specific name.
All trades in the crypto wallet must match those in the SMSF’s bank account to show that the two are linked. The SMSF can also sign a declaration of trust stating that the cryptocurrency belongs to the SMSF.
Buying from a relative?
With a few exceptions, SMSFs cannot purchase an asset from a person who is connected to them. This is not a possibility for SMSFs because of an ATO restriction prohibiting them from purchasing bitcoin from a linked person. The result of this is that they are not able to purchase such assets from them. This extends to all asset classes such as property etc.
As we’ve seen thus far, SMSFs hoping to swiftly grow their members’ retirement benefits may wish to consider investing in cryptocurrencies.
As long as your SMSF complies with all rules, the ATO should not deem your activity uncompliant. Visit the ATO here to find out more.
Or chat to one of our SMSF crypto experts through a free consultation. Click here.