Virtual Currency

Virtual Currency (Cryptocurrency) is a type 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. Bitcion is one of the most popular virtual currencies and it has increased in value rapidly in recent years.

So far, there are not yet any formal rulings or publications from the ATO clarifying how the rules apply to bitcoin investment in the SMSF. We note there are a number of issues the Trustees of an SMSF need to consider before investing in bitcoins.

Trust Deed and Investment Strategy

The Trustees of an SMSF need to review the SMSF Trust Deed and Investment Strategy to ensure that Bitcoin is an allowable investment of the Fund. The Deed we issue refers to the Superannuation Act and Superannuation Regulations and is written in a way that removes the need for regular updates. Our Deed doesn’t restrict the Trustees from investing in Bitcoins. The Investment strategy of the Fund should be in alignment with the Trust Deed, setting out specific investments that the SMSF can make. We provide the Trustee with an Investment Strategy template. The Trustee can edit the template to include their choices of investments.

Ownership and Valuation

The Trustees of the SMSF need to ensure the Fund has legal ownership of the bitcoins. The individual Member should not be in control of the SMSF’s bitcoins at any given time. It is important to separate SMSFs’ assets to the Members’ personal assets. When registering a Bitcoin Wallet with the provider, please ensure the legal owner of the Wallet should be the Fund.

In terms of valuation, we revalue the Bitcoin investments to its 30 June market price when performing the year-end accounting process.

Taxation

The Tax Office has issued several practical guidelines regarding the taxation treatment of Bitcoin investments. The Trustees of the SMSF who use bitcoin as an investment may be subject to capital gains tax rules when they dispose of it, as they would for shares of similar assets.

Although Bitcoin is like a ‘foreign currency’ in nature, the Tax Office determination (TD 2014/25) sets out Bitcoin is not a ‘foreign currency’ for the purposes of Division 775 of the Income Tax Assessment Act 1997. For more details, we’ve included the ATO guidelines here for your reference:

TD2014/25      TD2014/26

For more information on other types of investments in an SMSF, please see our investments page here.

  • Simon

    Hi, can you clarify how crypto currency is taxed within a SMSF. I have heard conflicting information that Crypto currency is not taxed until it is transferred back into a fiat currency. If it remains as crypto, it is not taxed (as the gov doesn’t regard it as a currency. ) It is still reported as a capital asset but not taxed until it is transferred back to a legitimately recognised currency,
    Also is Income tax and Capital gains the same for SMSF ? 15% if disposed of in the 1st year or 10% thereafter ?
    can you advise what your understanding is.
    thanks

    • superannuationwarehouse

      Simon,

      Crypto currency is taxed in an SMSF similarly to any other capital asset. This means the SMSF will not pay tax on any unrealised gains. Its exactly the same principle to taxing property or shares.

      Realised gains are taxed as follows:
      1. Short gains (meaning you held it for less than 12 months) will be taxed at the standard rate of 15%.
      2. Long gains are taxed at the discounted rate of 10%.
      3. If you dispose of the asset within the pension phase, the tax is the best rate. NIL.

      On an annual basis, we will display the crypto a market rates. So we note the amount of coins used and apply the year end rate.

      For extra guidance, you can view the ATO determination regarding crypto currency on the links above. Let me know if there’s other questions.

      • Collin Mill

        Hi, You still did not answer Simon’s previous question properly – Maybe you didn’t understand the question? – Is there a capital gains event if you SELL A CRYPTO IN EXCHANGE FOR ANOTHER TYPE OF CRYPTO WITHOUT ACTUALLY CONVERTING OR SELLING IT FOR REAL FIAT MONEY — My Conclusion is there is NO CG EVENT UNTIL A CRYPTO IS CONVERTED BACK TO CASH because the ATO does not classify a crypto as a currency?

        • Justin Hobbs

          I would like to know this answer aswell “if you SELL/trade A CRYPTO IN EXCHANGE FOR ANOTHER TYPE OF CRYPTO WITHOUT ACTUALLY CONVERTING OR SELLING IT FOR REAL FIAT MONEY ” is there capital gains applied

          • Justin Hobbs

            Looks like audit time is going to be fun

          • Collin Mill

            Yes, audit time will be interesting – anyone there actually done an audit on crypto exchanges? – I doubt whether the mod answer above is correct, Does the mod have any actual case experience on the matter. The mod also neglects to mention (hence the experience doubt) that there is NO TAX AT ALL if you spend it in less than $10,000 parcels, that’s right No TAX not even Capital Gains Tax – So just keep that in mind when you exchange one Crypto to another – just do it in less than $10,000 increments and your safe because the ATO doesn’t consider the crypto as a currency yet?

          • superannuationwarehouse

            When a crypto is sold, it is taxed. What you do with the proceeds does not have any bearing on the taxation effect.

          • Collin Mill

            Wrong – what you do with the proceeds does indeed have an effect – you can buy up to $10,000 worth of other crypto’s and PAY NO TAX? If you cash it in for fiat money then a Capital Gain event is triggered.

        • superannuationwarehouse

          Yes – its taxed. Reason – its realised.

  • Toni Gem

    Hi, I have a question around using crypto currency to purchase crypto currency, if I purchase Etherium from my
    registered SMSF exchange account and then use that Etherium to purchase another
    alternate crypto currency from the same exchange account instead of AU dollars,
    how would this effect me in terms of CGT or other tax implications? If I
    don’t convert my etherium back to dollars but use it to buy crypto currency.

    • superannuationwarehouse

      Nick,

      Transactions involving cryptocurrency have a similar tax consequence to any other capital asset, for example shares. If a gain is realised, the Fund will be taxed. An SMSF is not taxed on unrealised gains.

      If an asset is sold, the gain is a realised gain. What you do with the proceeds of the sale is irrelevant to the tax treatment of the realised gain. In your example, the realised gain on the Ethereum sale is taxed.

      Realised gains are taxed as follows:
      Short-term gains (held less than 12 months) – taxed at the standard Super rate of 15%.
      Long-term gains are taxed at the discounted rate of 10%.
      If you keep the asset until pension phase, the tax rate is NIL.

      On an annual basis, we will display the crypto at market rates. All assets in an SMSF, including crypto, must be displayed at market rates at year end. .

      For more on the taxation of realised and unrealised gains, see our tax page here:
      https://www.smsfwarehouse.com.au/services/tax/

      Trust this answers your question.

  • Tshepo

    Hi, I’ve got an SMSF and I’m already investing in Bitcoin however wanted to know if I wanted to start trading other crypto currency which other exchanges can I use in Australia? I’m currently using Independent deserve as it’s the only one that I found giving an option to set up my account in my SMSF however I’m only limited to Bitcoin, Bitcoin cash and Etherium. I now want to into Alt coins…

    • Toni Gem

      Tshepo has asked a question similar to what I was going to post, and also relates to my first question about using Etherium to buy alternate currency. Coinspot does support SMSF accounts and has many more cryptotocurrency`s available than most AUS exchanges but is not accepting any AUD deposits atm and its fees are higher than Independent reserve something around 3% mark compared to .5% at independent reserve. My question is If you purchase Etherium from Independent reserve exchange and deposit this into your coinspot exchange smsf account then purchase Alternate coins with your Etherirum on the same day you purchased Etherium from Independent reserve how are the short term potensial gains calculated in the 30 minutes of owning Etherium before converting this to a alternate coin? Also can we use exchanges in other countries outside of Australia to purchase cryptocurrency for our SMSF? What are the prerequisites of a SMSF exchange account to be compliant with auditing?

      • superannuationwarehouse

        Toni,

        Your first questions seems to be around taxation on short term gains with crypto currencies. Any gain is taxed as a CGT asset, even if the gain is madewhen converting to purchase other crypto currencies. We have a page on taxation of crypto currencies within an SMSF here:
        https://www.smsfwarehouse.com.au/tax-of-crypto-currencies/

        To be compliant for audit purposes, a similar process to verifying shares is used. The SMSF must own the coins via a virtual wallet. The auditor will note the purchase of coins via the SMSF bank account. For year end purposes, the coins held will be valued at year end rates.

        Remember the SMSF will not be taxed on unrealised gains.

    • superannuationwarehouse

      Tshepo,

      Your SMSF must have a legal enforceable right to the assets it owns, including virtual currency. When setting up the wallet, make sure to enter the SMSF name. This is the step that notes the SMSF as the owner of the virtual currency.

      Also, when purchasing the coins, pay it from the SMSF bank account. With the virtual wallet verification, make sure you use the SMSF bank account when they do the small deposits in the SMSF bank account verification process.

      Trust this gives you the guidance needed.

      • Tshepo

        Thanks for the response, are you aware of which other exchanges allow you to open up the wallet in the SMSF name besides Independent reserve & Coinspot? I understand if this is not your area of expertise however thought I’d ask anyway and maybe others on the forum may know.

      • Collin Mill

        If you sign up for CryptoCurrency trading under a SMSF and keep the coins in a wallet provided by the exchange then ownership title is essentially with the SMSF right? But no one (me) really wants to keep their coins locked up in the online exchanges which can be subjected to hackers and can even go bankrupt. So I want to keep the coins safe by transferring them to a secure Hardware wallet like Ledger Nano or Trezor USB wallets .. So does the ownership title still remain with the SMSF as long as the wallet addresses are recorded for SMSF Audit purposes?

        • Hein Preller

          Collin,
          As long as the SMSF has a legally enforceable right to the assets it owns, the storage is in order.
          It might therefore be a good idea for the SMSF to pay for these extra storage fees from its own bank account.

          • Collin Mill

            Hi Hein, The Trezor and Ledger Nano S are off line USB storage wallets, no ownership names are registered and as such there is NO legally enforceable rights a to these storage devices (which only really hold the Private Keys to the crypto’s) anyone who owns them and have the access to their PIN numbers can therefore transfer or use the crypo’s as they wish. Does paying for the device using a SMSF bank account prove legal ownership of the crypto’s stored in them?

          • Hein Preller

            Collin,

            Trustees need to act in the best interest of the SMSF. Trustee duties are explained in the ATO booklets and we provide copies of these publications here:
            https://www.smsfwarehouse.com.au/smsf-guide/

            If you then hold PIN numbers in your capacity as Trustee of the SMSF, the SMSF holds the PIN number. Remember also the Trustee will give a Representation Letter to the auditor at the end of the year confirming information is presented truthfully and confirming your act in the best interest of the SMSF.

            As crypto currencies are a relatively new area for SMSF’s, there may be grey areas. But as long as your intentions are to genuinely invest with the sole purpose of providing for your retirement benefit, you will be on safe grounds.

  • Nathan Maybo Broadbridge

    With setting up crypto trading accounts do I have to set it up as a business (enterprise) or personal with all the SMSF details?

    • https://www.smsfwarehouse.com.au Superannuation Warehouse

      Nathan,

      From a technical point of view, an SMSF is not allowed to run a business:
      https://www.smsfwarehouse.com.au/smsf-investments/business-in-a-smsf/

      On the initial set-up, note the SMSF name when opening the crypto wallet. Then its your details as you will operate the crypto purchases on behalf of the SMSF. Therefore, use your personal name to complete the account opening process.

      Trust this answers your question and thanks for posting.

      • Nathan Maybo Broadbridge

        Awesome thank you

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Superannuation Warehouse is an accounting firm and do not provide financial advice. All information provided has been prepared without taking into account any of the Trustees’ objectives, financial situation or needs. Because of that, Trustees are advised to consider their own circumstances before engaging our services.