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