SMSF Crypto tax deductions are an increasingly important topic for SMSF and non-SMSF Crypto investors, traders, and businesses. This article will shed some light on the most common types of deductions to assist SMSF Crypto tax deduction for crypto participants.
Where it pertains to taxable deductions SMSF members show remember that SMSFs are intended to provide for its member’s retirement income purposes and to provide support for members due to incapacity. These are the general covenants of the ‘Sole Purpose Test’ section 62 of the super laws.
Fund operational activities are generally deductible against the fund’s sources of income:
- Super contributions
- Rental returns
- Crypto staking rewards or crypto gas (*dividend like crypto coins like NEO)
Without intending to provide legal or tax advice, any expense incurred to produce income or to operate the fund is generally deductible and any expense for establishing a fund or a new service, be it advice on an investment, crypto wallet service would be considered a capital cost.
Examples of ongoing deductible expenses to an SMSF:
- Annual SMSF tax fees paid to My SMSF
- Audit fees
- Regulator fees – ASIC company renewal fee of $56
- ATO levy of $259
Note: Members that are trustees of the SMSF cannot be remunerated for their role
General types of SMSF Crypto tax deduction allowed by an SMSF for tax purposes
- Operating expenses.
- Investment-related expenses.
- Tax-related expenses.
- Insurance premiums.
- Statutory fees and levies
- Legal expenses.
An SMSF Member buys a Coinguide SMSF Crypto Package at a cost of $330. This cost for a cold storage wallet and setup is a ‘Capital Cost’ which is not an immediate deduction. It may be deducted when you sell an asset like some bitcoin that has capital gains, thereby offsetting some of these gains against the cost of this package.
The SMSF members of a fund pay My SMSF its annual administration fee of $1,100 ( Bronze Care) for providing the tax and audit services via our partners. This fee is an ongoing fee payable for the ongoing maintenance of the fund’s compliance which is an SMSF Crypto tax deduction in the next financial year.
SMSF Investing in Crypto:
If your SMSF has purchased cryptocurrencies as an investment, you will be liable for capital gains tax (CGT) on any profits, if and when you sell or exchange this investment, where it has appreciated in value from the time you purchased it.
Calculation of Tax Example:
John buys $50,000 of Bitcoin in 2020 and sells it in 2021
Bitcoin value – $50,000 ( July 2020)
Bitcoin value – $110,000 ( July 2021) 120% increase
Tax is payable on 2/3 of $60,000 x SMSF Tax rate of 15%
The 2/3 gain is – $39,996 x SMSF tax rate 15% = $5,999.40*
If you hold them personally, in a partnership or trust for more than 12 months, you may be entitled to the 50% general CGT discount. Alternatively, if you make a loss when you dispose of your cryptocurrency this can be offset against other capital gains you made during the financial year.
Shaping / Swaps of one coin for another:
Where you have gains, shaping, or swapping eg: bitcoin for Shiba Inu coin will be treated as a sell for tax purposes. ATO could apply foreign currency tax rules to calculate the gain or loss on the swap or shaping from Bitcoin to Shiba Inu.
SMSF Trading Cryptocurrency:
If your SMSFs crypto activities consist of actively trading cryptocurrencies for a profit, compared to holding for investment purposes, the profit or loss from your trading will form part of your fund’s assessable income. The profit or loss is determined at the time of disposal
SMSF Mining Cryptocurrencies / Staking / Airdrops :
If your SMSF fund has purchased mining rigs using SMSF monies and is mining cryptocurrencies for profit or staking Bitcoin to derive staking rewards or if you hold an Altcoin which provides you with a free airdrop, these new coins were:
- Staking rewards ( additional % of coins)
- Airdrops ( free coins)
must be included in your SMSF fund’s assessable income. Mining activity will be treated as your SMSF carrying on a business and GST may be applicable.
Warning: seek expert legal and tax advice on Bot Trading, Mining, and hybrid crypto activities.
How is cryptocurrency taxed in an SMSF?
Cryptocurrency is taxed as a CGT asset in general. In simple terms, when you sell or exchange a cryptocurrency for another and the original coin has appreciated in value, then on selling or exchanging the coin, capital gains tax is calculated by taking ⅔ of the gain x 15% SMSF tax rate, minus the initial cost of buying the cryptocurrency.
Tax for traders and business operators varies a little and experienced tax advice should be sought before you engage in crypto investing.
What documents do I need to provide My SMSF at tax time?
Generally, for SMSF Crypto tax deduction purposes, your accountant or administrator will need:
- Buy / Sell – Receipts
- Transaction report –
highlighting all buys and sells, and money deposited into the exchange account and withdrawn. Value all assets held by the fund on the 30th of June 2021
Can I deduct all my expenses for Crypto Investing and Trading in an SMSF?
Generally, traders can deduct more operating costs such as trade fees, research service fees, software, than investors who may deduct indirect costs ( capital costs) when assets are sold down.
If you intend to obtain deductions for your SMSF Crypto Tax Deduction, all expenses relating to an SMSFs investing and operational activities, MUST be in the name of the SMSF eg: T Jones Super Fund, and be paid for from the SMSF cash account. If not, these payments may be treated as a loan to the fund.