As crypto currency like BitCoin and Ethereum become mainstream many clients are looking to invest into crypto currency in their SMSF. And managing the tax obligations of investing into crypto currency in your SMSF is incredibly important before you begin. This will typically happen once your grapple the concept of what is a self-managed super fund and how does it work.
Does your SMSF administrator allow for this to happen?
Many investment advisors and banks have a SMSF “platform” that they offer to clients for a discounted price. And the surprising thing is that they often work for investors who take on the advice of the investment group and invest in relatively benign investments. However these same groups will often restrict the ability of SMSF trustees to invest – they might channel you to one (or two) type of lenders, a restricted panel of stockbrokers and they might exclude you from investing into crypto currencies.
So, if the SMSF administrator has a limited choice of what you, as the trustee, can do and continue to enjoy their services: it might be time to engage a new administrator and a new advisor. At Westcourt we are independent of any investment house and we do not restrict and limit our clients into what they ultimately choose to invest in. This approach is actually relatively common in independent accounting practices around Perth – it is typically only found in that of “product pusher” SMSF services that are not common among wealthier families.
Does your SMSF trust deed allow for investing into crypto?
Your SMSF trust deed governs how your SMSF can operate. And sadly every SMSF trust deed is unique and must be read on its own merit.
So while it would be unusual to find a SMSF trust deed that bans crypto investing – it does not mean that the your trust deed absolutely allows it. Check the trust deed as it can save a world of pain, and fees, later on.
Does your SMSF investment strategy allow for crypto?
The SMSF investment strategy is a formal document that governs how the SMSF trustees will invest and manage the monies. And many investment strategies are drafted as a range for 0% to 100% for everything – with the exception of items like antiques, collectables and crypto currency investments.
Given the importance of your investment strategy, and given how easy it is to change the SMSF investment strategy, it is important that the SMSF trustees review their SMSF investment strategy and updated it if crypto is a banned asset (or if you are exceeding your threshold).
Properly create the crypto account
Tax laws for SMSF’s require that the SMSF trustee keeps the records of the SMSF separate to the affairs of the trustees. So if you are opening a crypto currency account through your SMSF you should make sure that the account (or wallet) is properly structured in the name of the SMSF trustees and also acknowledges the presence of the SMSF in the name of the account.
Further, if you are buying crypto personally you must have your own crypto account that is separate to your SMSF crypto account.
Check the purpose of the asset
If a SMSF makes an investment the sole purpose of the SMSF investment is to provide for the retirement of the SMSF members. So if the crypto exchange is providing commissions to the members directly on crypto trades, frequent flyer points or some other type of benefit outside of the SMSF you might be breaching the tax laws surrounding the investments within a SMSF.
You must value the crypto
Like any investment in a SMSF you must value the balance of your crypto currency to its market value at the end of each financial year. This must also be done if you are going to convert your SMSF to a pension phase or if a member is going to leave (or enter) the SMSF.
So getting your crypto broker or cloud accounting software (like CryptoTax Calculator) so that you can report on and prove an independent valuation of your crypto investments to your SMSF auditor.
Find a way to record the transactions
Nobody wants to give their crypto trading history to their SMSF tax accountant in a messy shoebox or clunky excel workbook. So, using a SMSF cloud accounting software program to report on transactions, trading stock, capital gains tax events, trading profit and loss, and other items like margin fees are important to properly report the impact of your crypto transactions to the ATO.
At Westcourt we collaborate with a range of crypto platforms, and we also partner with CryptoTax Calculator to automate the trading of your crypto SMSF investments. So, the crypto trading going into the many hundreds of transactions can often be done in a surprisingly short amount of time (if set up properly).
How are crypto currencies taxed in a SMSF?
For capital gains tax purposes crypto currency is treated like any other asset (like real estate). So if you buy and sell the crypto asset in your SMSF, and your SMSF is in “accumulation” stage then your SMSF will pay tax at the rate of 15%. If you held the assets for more than 12 months, and you bought them as a long-term asset, the tax rate is 10%.
If your SMSF is in pension phase, and if your SMSF pension is under the maximum threshold, then the crypto investment can be sold free of tax. Some SMSF’s (like the ones created by Westcourt) are flexible so that you can (potentially) convert your SMSF from an accumulation stage to a pension stage and then sell the same asset tax free.
The risk of crypto in your SMSF
Anybody who has heard of crypto investing has heard of the risk of investing into crypto currencies – be it either in your SMSF or outside your SMSF. So talking to an investment advisor or a personal financial product advisor about your proposed investment into crypto is always prudent. The investment adviser can potentially open your eyes to other types of investments that are potentially a better fit for you or they can detail the risk of investing crypto into your SMSF. Further, a SMSF has a range of benefits and downsides so talking to an investment advisor on this concept is important.
At Westcourt we are a tax, administrator, estate planning and SMSF strategy advisor. We stay away from investing or recommending an individual investment product and refer to quality independent investment groups for this type of advice. And given our sole focus on families in business, our proven deep knowledge on the tax law surrounding SMSF, and our demonstrated skill as independent tax accountants across Perth we are a natural choice for helping SMSF trustees structure, administer and plan their SMSF crypto investments – so why not give us a call?
