A self managed super fund (SMSF) is a way for you to diversify your investment portfolio. Unless you have been living under a rock for some time, you have likely heard of the lucrativity of cryptocurrency. So where do they both fit together?
SMSF trustees do have the ability to invest in cryptocurrency, but there are some factors to consider.
Is cryptocurrency considered money?
No. Cryptocurrency is currently not considered to be legal tender of any kind, whether it be $AUD or a foreign currency. On the 7th September 2021, El Salvador was the first country in the world to recognise cryptocurrency as a legal tender, but it remains to be seen what other countries will do in response to this becoming a foreign currency as a result.
Cryptocurrency and capital gains
As it is not a currency for Australian tax purposes, cryptocurrency is therefore treated like any other asset. That means that losses or gains resulting in the buying and selling of crypto are treated like assets are for capital gains.
However, some situations consider the buying and selling of cryptocurrency to be the actions of a business and is therefore seen to be on a revenue account rather than a capital one.
If any crypto is held for up to 12 months then the whole capital gain is assessable income. Any longer than 12 months and any capital gain may receive a discount.
Treating cryptocurrency as a business
There is no single factor that determines whether the buying and selling of crypto is a business. One misconception that is putting a lot of people out is that gains achieved from crypto are not tax free, regardless how small they are. An ATO ruling can determine whether the trading of crypto is a business or a hobby.
Meticulous record keeping is essential to support your case, regardless of how frequently you dabble in this field.
SMSFs and Cryptocurrency
Because crypto is not a currency, it is always treated as a CGT (capital gains tax) asset when owned by a SMSF.
The acquisition of cryptocurrency within an SMSF needs to be on an arm’s length basis from an unrelated third party to be approved.
There is a host of SIS (superannuation industry supervision) legislation regarding cryptocurrency available for those interested in ensuring that they are following all necessary rules.
Here at ATS we can support you by answering questions regarding cryptocurrency and your SMSF directly, whilst helping you to achieve the best possible results for your future.