The Australian Taxation Office (ATO) views cryptocurrency assets as, not money, but as capital gains tax (CGT) assets. The tax consequences for SMSF members will depend on the nature of the SMSF’s circumstances. So, a fair comparison would be other CGT assets, such as commodity or property investments. Gold and diamonds are considered commodity assets, which are treated in the same way as crypto when they are exchanged or sold. The treatment of SMSF Cryptocurrency Tax Guide transactions depends on the activities surrounding the transaction which will determine if it is a capital gains event or if it is accessible as income.
SMSF Cryptocurrency Tax Guide Treatment For-Investors.
- If you purchase crypto assets as a buy-and-hold investor, it will be considered a capital cost by the ATO, which means you are not allowed deductions to your super fund (SMSF).
- The ATO considers the sale of a crypto asset a capital gains tax event, where the 50% (12-month holding discount) CGT discount applies to individuals. For super funds, the gain is assessed at the marginal tax rate of 15% on 2/3 of the gain for super accumulation members and 0% tax, for pension members.
- Crypto asset losses, ‘may be offset against other asset gains or income in the superfund.
- Crypto asset losses may be carried forward so that they may be offset against future crypto-asset gains in the superfund.
- Expenses for acquiring crypto assets may be used to offset capital gains tax.
calculations, such as brokerage costs, setup costs, wallet costs, or interest on borrowings, but these are not deductible costs each year for investors. SMSF Cryptocurrency Tax Guide is complicated for SMSF members and accountants, which is why it’s important to find experienced and knowledgeable providers like My SMSF.
EXAMPLE: YOU PURCHASE 1 BITCOIN (BTC) IN AUD
- Purchase date 29th August 2017
- Cost: $4,700 USD/ $6,279.20 AUD
- Brokerage Cost: 1% 47 USD / $62.79 AUD
- Value of 1 x Bitcoin @ 15th of May 2018 = $8,735 USD / $11,565 AUD
- Potential gain – $4,035 USD / $5,390.76 AUD
You intend to hold this crypto asset without any intention of short-term profits, this asset will be treated as a CGT asset. If and when it is sold or exchanged for another coin at a future date, the tax will apply at the prevailing rates for SMSF cryptocurrency tax.
SMSF Cryptocurrency Tax Guide FOR – TRADERS / MINERS
The tax treatment for those who are trading and mining cryptocurrencies is different for investors.
The ATO states the following activities are defined as running a business
- Trading in cryptocurrency
- Mining cryptocurrency
- Cryptocurrency business services, i.e.: exchanges, apps, ATM’s, etc
The transferor disposal (shaping- moving from one coin to another) is considered assessable income to your SMSF which notably is taxed at 15% compared to other structures and personal tax rates.
Potentially, the expenses attributed to running a business would be tax-deductible such as acquiring any mining equipment, brokerage costs, internet, subscription service fees, and other costs within reason.
Remember SMSF cryptocurrency tax is complicated so seek qualified advice.
The transferor disposal (shaping- moving from one coin to another) is considered assessable income to your SMSF which notably is taxed at 15% compared to other structures and personal tax rates. Potentially, the expenses attributed to running a business would be tax-deductible such as acquiring any mining equipment, brokerage costs, internet, subscription service fees, and other costs within reason.
You buy 1,000 NEO coins (NEO) at $11.93 (AUD on the 5th of Aug 2019) and sell it on the
13th of July 2020 at $15.40, your calculations for tax would look something like this.
- Purchase – $1,000aud1,000 units of Neo coin
- Cost base – $11,930 (@ $11.93 per coin)
- Capital Gain Assessable – (1,000x $15.40 = $15400) x (2/3% of the gain-$10,266) x 15% ($1,540 tax) SMSF tax
- Tax payable would be $1,540 tax
- The net gain would be – $13,860
Calculating Neo income ( Gas payments ):
- 1000 Neo/s (= $10,760) USD or $15,436.83 AUD
- Current rates: GAS =$1.69 USD or $2.42 AUD
- Block Generation Rate: 19.26 seconds
- Per Day 0.3140
- Per Week 2.1979
- Per Month 9.7336
- Per Year 114.6
Calculating Tax on Gas payments :
- 1000 Neo/s equals Gas distributions of (=$2,430.70 AUD for a 12 month period)
- Tax is calculated as follows: $2,430.70 x 15% ( smsf tax rate) = $364.605 Tax
- The net gain is = $2,066
On 1000 Neo the Gas an
investor would generate is
$2,430.70 GAS income
SMSF COMPLIANCE DOCUMENTS:
You need to keep the following records in relation to your SMSF cryptocurrency tax Guide currency transactions:
- The Buy/Sell contract note or receipts, obtained from the exchange.
- The value of the cryptocurrency at the 30th of June (purchase price, units, value).
- Proof of wallet ownership by the SMSF, proof of storage of assets in an independent location
- What is commonly referred to as ‘shaping’ or exchanging of one crypto coin asset for another, is a taxable event.
- The transfer of one coin (date, value, quantity) for a new coin (date, value, quantity)needs to be recorded and reported when completing an SMSF return in Australian dollars. This may result in these transactions being treated as income or capital in nature depending on the activity and frequency of these transactions within the SMSF.
CRYPTO FORKS, AIRDROPS, AND LOSSES IN SMSF FORKS OR CHAIN SPLIT:
A coin fork; which was more common a few years ago; would result in a competing version of a coin. The best example of this was when bitcoin, was forked into bitcoin cash on the 1st of August 2017 creating ( BCH) bitcoin cash and where all bitcoin holders received the equivalent amount of bitcoin cash based on their holdings of bitcoin.
Alex held 10 Bitcoin on 1 August 2017 as an investment, when Bitcoin Cash split from Bitcoin. Immediately after the chain split, Alex held 10 Bitcoin and 10 Bitcoin Cash.
Alex does not derive ordinary income or make a capital gain as a result of the receipt. A report listing all transactions for the financial year, obtained from the exchange.
Anastasia holds 50,000 NULS tokens, which she stakes to a NULS pool as a premium staker. Anastasia receives additional NULS tokens when her pool participates in consensus, including a small payment of tokens from the node leader for supporting their node.
The money value of the additional NULS tokens Anastasia receives is the assessable income of Anastasia at the time the tokens are derived. The cost base of Anastasia’s additional NULS tokens will be their market value at the time they were derived.
On 25 May 2018, Alex sold the 10 Bitcoin Cash for $4,000. Because the cost base of the Bitcoin Cash was zero, Alex makes a total capital gain of $4,000 in the 2017–18 income year from the sale of the Bitcoin Cash.
Staking, Lending, and Airdrops:
Staking is the process of parking or lending an investor/trader’s coins, in return for interest-like payments, which are used to verify transactions on a particular coin’s blockchain by miners.
Similarly, lending via a crypto platform; which MUST recognize an SMSF as the owner of the original asset; remits payments to the holder of the coins in additional coins at a prescribed interest rate.
When staking or lending the coins cannot be redeemed, ‘typically’ until the expiry of the term.
Note, there are many providers that require investors to give the platform access to their private keys. Given the importance of your private keys to demonstration ownership and control, it is ill-advised that SMSF crypto investors part with their private keys.
According to the ATO,
“Where Token holders who participate in ‘proxy staking’ or who vote their tokens in delegated consensus mechanisms, and receive a reward by doing so, also derive ordinary income equal to the money value of the tokens they receive” which is taxable.
Some projects ‘airdrop’ new tokens to existing token or coin holders as a way of increasing
the supply of tokens (for example, Pundi X and Tron). The money value of an established
token received through an airdrop is treated as ordinary income of the recipient at the time
it is derived and received by the SMSF, according to the ATO.
CRYPTOCURRENCY SUPER CONTRIBUTIONS:
Members of an SMSF may enter into arrangements with their employer or notify their accountant; if self-employed; to receive cryptocurrency in lieu of AUD super contribution payments. These arrangements need to be treated as fringe benefits and are taxable at FBT rates.
Further, PAYG obligations are imposed on the employer or accountant, who would need to record and report these payments to the ATO.
FBT RATE FOR THE YEAR ENDING 31 MARCH 2018 TO 31 MARCH 2022Tyear FBT Ending 31 March 2018 and 31 March 2022 = 47%
SELECTING CRYPTO ASSETS FOR YOUR SMSF:
The simplest and often lowest risk strategy is to look at the top three or top ten coins, simply due to the performance and liquidity characteristics of these coins and this is what most of our members tend to do.
Some of the other considerations with buying crypto assets are in determining if the following types of investments are part of your portfolio.
- Leverage coins
- Crypto Funds – unless the fund recognizes an SMSF as the owner of units and income, it won’t comply with super laws.
- Airdrops and crypto coin distributions
Loss or theft of cryptocurrency:
According to the ATO,
“You may be able to claim a capital loss if you lose your cryptocurrency private key or your cryptocurrency is stolen”.
In this context, the issue is likely to be whether the cryptocurrency is lost, whether you have lost evidence of your ownership, or whether you have lost access to the cryptocurrency. Generally, where an item can be replaced it is not lost. A lost private key can’t be replaced. Therefore, to claim a capital loss you must be able to provide the following kinds of evidence:
- When you acquired and lost the private key
- The wallet address that the private key relates to
- The cost you incurred to acquire the lost or stolen cryptocurrency
- The amount of cryptocurrency in the wallet at the time of loss of private key
- That the wallet was controlled by you (for example, transactions linked to your identity)
- That you are in possession of the hardware that stores the wallet
- Transactions to the wallet from a digital currency exchange for which you hold a verified account or are linked to your identity.
*These examples are courtesy of the ATO SMSF Crypto Currency page*
These variations on conventional or straight out crypto coin investing are important considerations in an SMSF as they could create an unintended compliance breach for your fund, as the owner of the asset; in most cases; will not end up being the SMSF at the end of the transaction.
Here is an example:
Consider a coin offering that requires you to invest via a deposit of a seed coin such as Bitcoin or ether. Typically, once you seed the investment; in a crypto fund or leverage coin service, the coins you have purchased via your super fund are no longer owned by the super fund.
They are owned by the provider, who provides a distribution via an account on their platform to an individual or via payment to an individual wallet address making the initial investment an individual investment despite the origins of the funds, which are entitled to a distribution.
Whilst this arrangement is perfectly legal when entered personally, it will breach the related party transaction super laws, in-house assets test, and segregation of assets tests.
Simply put, this is a huge compliance breach as your superfund is no longer the owner of the assets, and distributions are often paid, but your super fund cannot prove it invested in the second asset and the distributed income is hard to reconcile. SMSF Cryptocurrency Tax Guide is not easy to understand. There are some exceptions to the above types of investments, but expert tax advice must be sorted before engaging in these activities.
Experienced SMSF cryptocurrency tax providers like My SMSF will be critical to ensure you are less stressed at tax time and your work is completed accurately and efficiently.