Australians who are wanting to invest in cryptocurrencies for your SMSF will need a secure digital wallet. A digital wallet similar to a bank account in the crypto world. You will also need an account with a crypto exchange, the crypto equivalent of an online broking account.
There are dozens of digital wallet providers, but only a few are genuinely suitable for SMSF investors. Cold wallets such as Ledger and Trezor are most compliant with super regulations. They are also more secure because they allow you to store cryptocurrency offline with a private key.
While some crypto exchanges offer a default wallet, these are less secure than cold wallets. Like all SMSF investments, your SMSF cryptocurrency must be kept separate from your personal cryptocurrency assets.
It is crucial for SMSFs to choose an Australian-based crypto exchange that accepts and recognises SMSF investments. There are about six exchanges that accept and recognise SMSFs, with ZebPay and EasyCrypto among the cheapest and easiest to use. Brisbane-based Ainslie Wealth has a store front for those who are more comfortable transacting in person. Expect to pay trading fees ranging from 0.4–1% of each transaction, as well as account fees.
Preferably, you should set up a single digital wallet for all your fund’s cryptocurrency transactions to make record-keeping as simple and transparent as possible.
You will be able to use the Australian dollars in your SMSF’s bank account to buy cryptocurrencies. Whenever you decide to sell, cryptocurrencies can easily be converted to Australian dollars. It’s crucial to remember though that the proceeds of SMSF cryptocurrency investments are just like any other superannuation investment. They can’t be accessed until fund members reach their preservation age. A member’s preservation age is between the ages of 55 and 60, depending on their date of birth.
The proceeds received from cryptocurrency sales should be transferred to your SMSF’s bank account so you can declare any profit or loss you’ve made on any cryptocurrency transactions as part of your fund’s annual reporting obligations to the Australian Tax Office (ATO).
Possible Risks Associated with SMSF Cryptocurrency Investments
Cryptocurrencies are not legal tender, although they can be used to pay for goods and services if a seller is prepared to accept them. This means that cryptocurrencies do not have the backing of any bank or the Australian Government, in comparison to the Australian dollar, which is backed by the Reserve Bank and the Australian Government. This means investors are unlikely to receive government support if a cryptocurrency they hold ceases to exist for any reason.
There is also the unfortunate possibility for cryptocurrencies to be stolen from your fund’s digital wallet by online hackers, though you can (and should) arrange for insurance against this happening. Choosing a cold wallet with a private key, rather than a default wallet offered by crypto exchanges, will provide additional security.
Cryptocurrencies As An Asset For Capital Gains Purposes
It is important for SMSF’s to remember that it’s a legal obligation for SMSFs to value their assets according to ATO guidelines as part of their annual reporting, and cryptocurrencies are no different. They must be valued at their current market rate as at close of trade on 30th June at the end of each financial year.
Cryptocurrencies are also regarded as an asset for capital gains tax (CGT) purposes. If your fund makes a capital gain when selling a cryptocurrency, you may have a CGT obligation. The CGT rate for SMSF assets which have been held for longer than 12 months is effectively 10 percent. This is a one-third discount on the full CGT rate of 15% for assets your fund has owned for less than 12 months.
However, if cryptocurrency assets are being used to fund the pensions of members in your SMSF, any capital gains on their sale is exempt from CGT.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 07 36086800.
The team at C&D Restructure and Taxation Advisory are here to help. As part of the Vault Group we can offer the full suite of financial products and advice to help you navigate the business landscape. Schedule a meeting here via Calendly or give us a call on 1300 1 VAULT (1300 182 858)
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