Cryptocurrency is a form of unregulated, digital money in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank.
Trust Deed and Investment Strategy
Trustees of an SMSF must review the Trust Deed and Investment Strategy of the Fund to ensure that cryptocurrency is permitted as a form of investment for the Fund. The Trust Deed template that we offer refers to the SIS Act and SIS Regulations and is drafted in a way that does not require regular updates. Our Trust Deed and Investment Strategy do not restrict the Trustees from investing in Bitcoin. Trustees can download the Investment Strategy template and edit it to suit their investment choices.
Ownership and valuation
When investing in cryptocurrency, Trustees must ensure that the Fund has legal ownership over the asset. When registering for a cryptocurrency wallet with a provider, please ensure that the wallet is under the name of the SMSF.
It is an ATO requirement for all assets to be disclosed at market value at year end. Therefore, during the accounting process, we require Trustees whose Funds are investing in cryptocurrencies to provide us with a holding statement of their cryptocurrencies wallets at 30 June confirming the number of units owned as well as the market value of the cryptocurrencies owned by the Fund. Alternatively, Trustees can provide us with a screenshot showing the same details at 30 June. In addition, we also require the transaction history showing investment activities in terms of cryptocurrencies and Australian dollar value during the financial year. For the example of a holding statement, please click on the button below:
Taxation
The ATO has issued several guidelines regarding the tax treatment of cryptocurrency investments. When Trustees dispose of cryptocurrencies, the Fund may be subjected to capital gains tax as cryptocurrencies are taxed as a CGT asset.
The ATO has determined that although cryptocurrencies such as Bitcoin may be similar in appearance as “foreign currency”, cryptocurrencies are not considered to be a form of “foreign currency”. For more information on the ATO guidelines, please click on the buttons below:
Crypto Trading Platforms and Wallets
When opening up a Bitcoin account for your SMSF, consider using Hardblock as a provider.
If you would like to find out more about investing Bitcoins in SMSFs, we give guidance on the podcast below:
When investing in crypto, please ensure you are aware of the risks involved. In recent news, due to the current FTX collapse, Digital Surge is currently blocking withdrawals. Click here for more information on this news.
Furthermore, in order to store crypto investments in a secure way, Trustees should consider the risks of keeping cryptos on online trading accounts or digital wallets. The biggest danger in crypto security is the individual user perhaps losing the private key or having the private key stolen. Without the private key, it’s likely that the investors can never recover the cryptos. Besides losing the private key, Trustees can also lose their cryptos by computer malfunctions (crashing a hard drive), by hacking, or by physically losing a computer where the digital wallet resides.
Banking Providers
Recently there have been a number of banks that have begun to restrict transactions of cryptocurrencies. When selecting a bank provider for your SMSF, please consider if they allow for crypto transactions.
See below for some examples of bank providers which allow for crypto transactions:
Accounting Fees
For Funds with cryptocurrency investments, we charge an additional fee of $350 on top of the monthly/annual fees. The main reason for this is that there are more stringent requirements for crypto investments in the audit process so the external auditors charge us at a higher cost. For more information on our fee schedule, please see this page.
For more information on taxation in an SMSF, please see here.
FAQs About SMSF Investments in Cryptocurrency
What does wrapping mean in crypto and it’s tax treatment?
Wrapping is converting a crypto asset into a tokenized version on another blockchain. Both wrapping and unwrapping are treated as Capital Gains Tax (CGT) events, as they involve giving up and then regaining the original asset.
