In this blog, we will get the best guide in 2021-2022 for SMSF Crypto EBook. Cryptocurrencies are becoming increasingly popular with SMSF investors and the goal of this article is to highlight some of the considerations SMSF members should make when investing in crypto assets through their SMSF Crypto EBook knowledge, as well as what the super regulations demand to guarantee your activities and SMSF are compliant.
Cryptocurrency assets are not classified as “currency” by the Australian Taxation Office (ATO), but instead as a capital gains tax ( CGT) asset. The tax implications for SMSF members will vary depending on the SMSFs circumstances. Other CGT assets, such as commodity or property investments, would provide a good comparison.
Gold and diamonds are classified as commodity assets, which are taxed in the same way that cryptocurrencies are when they are exchanged(swapped), or sold.
The tax treatment of crypto transactions is determined by the activities around the transaction, which define whether it is a capital gain or income event.
SMSF Crypto Setup Checklist:
- Create an SMSF, or update an existing SMSF
- Check the Deed to see if it allows investing in crypto
- Update the Investment Strategy
Checking your current SMSF Deed is the first step for SMSF Crypto EBook investors who have an established SMSF. It is best practice to ensure your fund’s deed has specific crypto clauses, allowing you to invest in cryptocurrency such as bitcoin.
If you are starting a new fund, getting a deed that recognizes crypto investments is ideal, and for existing SMSFs with crypto assets updating the deed and investment strategy are important steps to ensure compliance with super laws.
TAX TREATMENT OF SMSF CRYPTO EBook and BITCOIN FOR INVESTORS (Holders)
- The ATO considers the sale of a crypto asset to be a capital gains tax event, and people are eligible for a 50% (12-month holding reduction) referred to as a CGT discount. For SMSFs, the gain is taxed at a marginal rate of 15% on two-thirds of the gain for super accumulation members and 0% for pension members.
- Crypto asset losses in an SMSF may be carried forward and offset against future crypto-asset gains or other assets.
- Expenses for obtaining crypto assets, such as brokerage charges, setup costs, wallet costs, or interest on borrowings, may be used to balance capital gains tax calculations. Generally, these are not deductible expenses for crypto investors.
A capital gain:
If you own bitcoin or any other cryptocurrency coin and you make a profit when you sell, trade, or gift that asset, then generally, you need to pay tax on the capital gains portion.
If you purchased Bitcoin on the 20th of January 2017 at a price of $1,225.41 and later sell it on the 22nd of December of 2017 for $25,709 then you’ve made a capital gain of $24,483 where ⅔ of the gain is $16,321 and taxed at 15% which is $2,448 in capital gains tax payable by the SMSF.
A Capital loss is:
Where your cryptocurrency IE: bitcoin or other coins are worth less than the price you paid for them (purchase price) This is defined as a capital loss.
If your SMSF buys ten Litecoins at $201.26 on the 14th of June 2019 per coin( $2,012.60) and sells your litecoins at $67.15 a coin on the 22nd of May 2020, will result in a capital loss of $1,341.20 on this investment. This loss can be used to offset gains made in this or future financial years or it can be carried forward to offset gains made from future SMSF Cryptocurrency investment activities.
TAX TREATMENT OF CRYPTO FOR TRADERS AND MINERS:
SMSF Cryptocurrency traders and miners are taxed differently from investors.
The ATO defines the following activities as conducting a business.
- Cryptocurrency trading
- Cryptocurrency mining
- Cryptocurrency business services such as Exchanges, Private traders, Services, and Bitcoin ATMs
The transfer and disposal of cryptocurrency like bitcoin, including shaping or swapping one coin for another is deemed as a buy and sell and therefore, assessable income to your SMSF, which is taxed at 15%.
The costs associated with running a business, such as purchasing mining equipment, brokerage prices, internet costs, subscription service fees, and other costs within reason, may be tax-deductible.
CHOOSING CRYPTO ASSETS FOR YOUR SMSF:
Due to the constant volatility of crypto assets, most My SMSF Clients tend to invest in the top 20 coins, so they lower their potential risk, with a view to lower the SMSF risks.
Carefully consider if your SMSF intends to undertake some of the following investment activities in your portfolio.
- Staking on a platform
- Investing in crypto mutual or fund of funds
- Mining contracts or Rigs
- Frequent trading and use of Bots
- Crypto coin distributions and airdrops
A lot of these practices are risky as they may render your SMSF non-compliant as the third party provider has not provided the service to the SMSF, but to an individual and there the SMSF is not the legal owner of the asset. This responsibility lies with SMSF members, trustees to adhere to the super laws.
In 2017 My SMSF was flooded with calls from SMSF investors who wanted to invest in Bitconnect and who wanted to set up an SMSF for investing in fund of fund operator investments.
Bitconnect was identified as a network marketing style scam and ASIC took action against the Bitconnect operators in Australia in 2020.
There are still many fund-of-fund-type crypto scams and network marketing-style crypto investment scams around. If the promise of 200% – 1000% returns in a month sound too good to be true, that is because they are.
Often these scams are promoted by friends and family members unknowingly and on social media, where the word spreads quickly. My SMSF warned potential SMSF investors in 2017 to avoid these types of funds and refused to set up SMSFs for these types of activities.
We still maintain a strong position on compliance and acceptable practices in an SMSF. At My SMSF we believe that the ATO and Austrac ( the regulators for cryptocurrency) have given Australians a unique opportunity to invest in Bitcoin and cryptocurrencies in their SMSFs. We have always valued and respected this unique right and opportunity and we have always sought to align our views with the prevailing tax laws and licensing regulations as they stand.
Can an SMSF invest in CryptoCurrency and Bitcoin?
Yes. under the prevailing super laws, they are not prescriptive enough to disallow investing in cryptocurrency or any specific type of asset class.
The super laws( SIS Act 93+) refer to sections: 62, 61, 109, and 4.09 as critical sections that relate SMSF crypto investments and the responsibilities that pertain to SMSF members investing in cryptocurrency.
Update your trust deed and investment strategy to document these investments to ensure compliance with the super and tax laws.
What do I need to put in place for my SMSF to purchase cryptocurrencies?
To invest in cryptocurrencies with your SMSF, you’ll need an SMSF Crypto exchange account in the name of the SMSF. A secure cold wallet, or an exchange wallet, and ideally an SMSF Administrator who understands crypto-like My SMSF.
What are the tax and Audit requirements for SMSFs investing in Crypto?
SMSFs that invest or trade or any other related service, will need to provide the fund’s Tax Agent and Auditor with the following documents.
- A detailed crypto transaction report
- A copy of each BUY/SELL receipt or trade note, or contract note
- A valuation report showing the value of your crypto on the 30th of June each year
When considering investing in crypto assets through an SMSF Crypto EBook, it is critical to reflect on your previous experience with crypto assets, the risks to your retirement savings and the suitability of these assets for all SMSF members, the member’s timeframe to retirement, the volatility and security risks inherent with crypto assets.
Crypto assets held in an SMSF can be a wonderful portfolio diversifier and risk mitigator, but it is not an investment that will suit many Australians. Before adding crypto assets to an SMSF, it’s usually a good idea to seek tax and legal advice and complete education courses to become more informed to meet your duty of responsibility.
Remember SMSFs are not suited to a lot of Australians, due to the added responsibility, time commitment, and lack of compensation for investment losses within an SMSF. So do your research, always seek advice and only add crypto assets in an SMSF where you have personal experience investing in bitcoin and crypto-assets.