The advent of cryptocurrencies like Bitcoin, Ethereum has changed the investing landscape. They’re relatively new assets with no central authority regulating them. So, if investing self managed super fund into crypto is on your mind, proceed with caution.
A self-managed super fund (SMSF) is a go-to option for most Australians to save for retirement. In this article, learn how to include cryptocurrencies into this fund for the best results. Along with that, a few things you should check before proceeding.
Understanding Cryptocurrencies
As already stated, cryptocurrencies are a relatively newer asset class. Therefore, you must understand the basics and working mechanism behind them before investing.
All cryptocurrencies like Bitcoin, Ethereum, Dogecoin are digital currencies powered by a distributed ledger. There’s no central authority involved, serving as a mediator. Instead, the ledger facilitates peer-to-peer transactions.
Currently, people use cryptocurrencies for online payments or as a store of wealth. When you buy a cryptocurrency, you add it to your portfolio of assets you own. Just like other assets, their value increases and decreases with time.
Furthermore, you should know that crypto-assets do not generate any income or dividends. The investment is purely speculative, with a hope that the currencies will appreciate in the future.
However, you should know a few things and check when investing in a self-managed super fund into crypto.
Identification and Ownership
To start trading cryptocurrencies, you’d need to have a unique encrypted code, also known as a wallet. This is unique to you and helps identify the owner of the currencies. The wallet is like the address.
The SMSF needs its wallet. This has to be separate from any other wallets you might own for personal investing. Therefore, you mustn’t mix SMSF with other personal crypto assets.
As a trustee of the SMSF, you must ensure the following:
- The trading history must match with the transactions from the bank account of the fund. In other words, the accounts used for funding SMSF must be traceable.
- Create a deed of trust or other documents that confirm that the crypto investment is held solely for SMSF purposes.
Sole Purpose Test
The sole purpose of SMSF is to ensure the beneficiaries of the trustees get the retirement benefits. So if the member dies before retirement, the assets are passed onto their dependents.
As a trustee, you must pass the sole purpose test for SMSF. Ensure that the funds are solely for retirement purposes and can’t be intertwined with other crypto assets. Otherwise, it would fail the SMSF sole purpose test.
Taxation
ATO does not consider cryptocurrencies legit since any country does not recognize them till now. But ATO does see them as an asset.
When you sell them for a profit, you attract capital gains tax. Likewise, if you sell them for a loss, you trigger a capital loss.
The crypto assets held in the SMSF will be taxed at the concessional 15% SMSF rate.
You should know that the cost incurred while trading or handling cryptocurrencies can’t be claimed as a tax deduction. Instead, they are considered as the cost base of the asset.
Other Considerations
Besides the above, you must consider other factors that the ATO has laid out for cryptocurrencies in SMSF.
First and foremost, the trust deed must allow for the purchase to happen. This must be as per the fund’s investment strategy. When doing so, the trustees must comply with SISA and SISR regulations.
When auditing your crypto assets, auditors will look for various things. But generally, they’ll try to check that the cryptocurrency is valued annually. Also, they’d ensure that the wallet is solely used for SMSF and not for personal needs.
There are several providers that offer crypto SMSF accounts. Before you start investing in a self-managed super fund into crypto, review their services thoroughly and set up an account.
