Can I put Crypto in my SMSF?

Can I put Crypto in my SMSF?

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. Can I put Crypto in my SMSF is a common question which has one of those yes… but, answers to it. In short 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 and meet the ATO guidelines.

Investment Strategy

When addressing the question can I put Crypto in my SMSF the first and foremost thing to review is your investment strategy. If you are looking to invest in Crypto then it must state that the trustees have decided that the SMSF is permitted to invest in cryptocurrency. You are able to stipulate a limitation on the amount the fund may invest (eg. a maximum of 50% Crypto assets) or keep it more general to allow for flexibility.

The Investment Strategy is not a template document and you should put in the time as the trustee to learn about how to write a compliant investment strategy which matches your actual plans. Remember if you invest in a way that breaches your investment strategy you will put your fund at risk when the next annual audit comes around. For more information about the requirements of your SMSF Investment Strategy check out this link to the ATO website.

Ownership

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. If you need any help with this reach out to one of our friendly team! If you haven’t setup your own SMSF yet then this article might help explaining the setup process and what to expect.

Acquisition

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.

Valuations

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 Australian Taxation Office 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.

Taxation of Cyrpto in an SMSF

The ATO have issued two taxation determinations confirming that cryptocurrency is classed as a Capital asset rather than currency. This means that any gains or losses on Crypto transactions are treated as either Capital Gains or capital losses within the fund. In simple terms, any profit you make on buying and selling cryptocurrency is subject to capital gains tax including the potential of getting the CGT discount for assets held for more than 12 months.

Keep in mind the Capital Gains Tax Discount works differently in the case of an SMSF as there is a one third discount only on the taxable capital gain which is then generally taxed at 15% if the fund is in accumulation phase.  Likewise any losses will be classed as capital losses and can be used to offset any capital gain but not revenue gains. Keep in mind most exchanges now report sales to the ATO so they are aware of your Crypto trading before you submit your returns. This makes it even more important to ensure you are reporting correctly and have the tax side of things sorted from the outset.

So can I put Crypto in my SMSF?

Short answer is yes, as long as you meet the SMSF SIS Act rules and have it appropriately documented in your investment strategy you can put Crypto in your SMSF! 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! Contact us today to learn how we can assist with your SMSF plans.