Invest In Crypto-currency With Your SMSF

A self-managed super fund or SMSF has the advantage of offering its trustees the freedom to choose their investments. Contrary to the Australian Prudential Regulation Authority (APRA) – regulated funds, SMSFs can have a maximum of six members (most have two).

The members are responsible for the SMSF services and risks associated with the fund, even if a third party assists them. Moreover, records show that APRA – regulated super funds are financially more viable than SMSFs. To get returns similar to APRA –regulated super funds, an SMSF must have a balance of more than AUD 500,000, on average. In this situation, investing in crypto-currency would be an effective method for increasing those returns.

Crypto-currency – What Is It?

It is a form of encrypted virtual currency managed through a distinct network of computers called block-chain technology. Unlike paper money, crypto-currency is impossible to counterfeit or double-spend. One of the critical features of these virtual currencies is that any central authority does not issue them. So, they are theoretically free from the manipulation and interference of the government. Other characteristics like divisibility, inflation resistance, transparency, and portability have increased the interest in digital currency. 

Why Invest In Crypto-currency?

Crypto-currency is slowly becoming a subject of consideration among investors, and many of them are starting to show interest in this new area of investment. The most evident reason for investing in this new financial chapter are listed below:

  1. The main reason for investing in crypto-currency is the long-term storage of value and its reliability.
  2. Crypto-currencies have a limited supply because of capping by mathematical algorithms –which makes them resistant to value – dilution through inflation. 
  3. Due to its cryptographic nature, it is impossible for anyone, even government authorities, to tax or confiscate crypto-currencies unless the user allows it.  

Due to its censor-resistance, bank failure-resistant, and deflationary properties – crypto-currency is attracting many investors. 

Using SMSF To Invest In Crypto-currency 

Although many investors believe that crypto-currency can become an everyday digital financial exchange in the future – currently, speculative trading is dominating this sector. Exchange trades remain the most established use and economically active than regular trades and purchases. Moreover, dealing in these currencies is a risky investment scenario, so one should consult experienced and skilled financial personnel before investing in them. 

Likewise, using SMSFs to invest in crypto-currency can become a high-risk, high-gain situation, so it’s better to do a comprehensive research before advancing to the investment stage. Follow these steps to use the SMSF to invest in crypto-currency:

Check Your Trust Deed.

Your trust deed species is the area where you can use the money in the SMSF to invest. Read the deed carefully and check whether it mentions crypto-currency. Legally, if you don’t have crypto-currency mentioned as an investment area in the trust deed, you cannot use the SMSF money to invest it. It is better to update the trust deed before moving on to the next steps. 

Including Crypto-currency In The SMSF Investment Strategy

You will have to include crypto-currency as a viable investment strategy in the trust deed. Senior members on the verge of retirement may prefer consistent returns and a more conservative investment approach, whereas younger investors with a higher risk appetite can prefer this investment mode. Either way, you will have to make crypto-currency allowable in trust deed – for that, you will have to justify its applicability as an investment to the members of the SMSF and the way it addresses their investment preferences and risk profiles.

For the needed ‘sole purpose’ test, you must keep your assets unconnected from the SMSF assets – in this case, a detached digital currency exchange account and a separate hardware wallet for your SMSF. 


Knowing The Crypto-currency Tax Effects

Crypto-currency is taxable under the existing tax laws, and you should know the following about it before you start investing your SMSF fund in these digital currencies:

Under Capital Gains Tax (CGT) purposes, crypto-currency is considered a capital asset. So, when your SMSF buys Bitcoin or another type of crypto-currency, CGT is triggered and levied. The tax rate for crypto-currency dealings is 15% if the fund has held it for less than 12 months and 10% if the SMSF has owned it for more than one year. 

Understanding The tax-reporting Obligations

You have to calculate the SMSF investments in crypto-currencies at a fair market value on June 30th of each year and report it to the ATO. To calculate the value amount here is what you should do:

  • Obtain the crypto-currency exchange report that records the historical value of that particular currency. 
  • Find out the closing value on June 30th.
  • Report the market value of your invested crypto-currency under item 15C of your SMSF tax return form. 

It is essential to get the value right and state the crypto-currencies under the correct asset class – otherwise, it could lead to severe problems. So, if you are looking for knowledgeable assistance in these matters, contact the most proficient accountant of your choice. 

Choosing A Well-known Exchange Or Crypto-currency Broker

You must research and find out the most appropriate exchange or crypto-currency broker for your SMSF from the vast collection of them. It would help if you keep these factors in mind while finalizing the broker:

  • You must register as an SMSF and therefore look for a concern that allows the registration of SMSFs.
  • The broker must provide updated and comprehensive reporting for SMSFs – including a complete history of transactions, yearly balances and values of your portfolio, and account statements preferably in PDF, and data in CSV format.
  • It is better not to employ an overseas broker because of their different standards of SMSF handling.

You will also need to keep the documents updated and completed.

The Final Steps

After choosing the provider, you have to sign up with them, transfer funds from your SMSF account to your chosen crypto-currency, and use a hardware wallet to initiate and perform any transactions. A hardware wallet is more secure – and you must buy it using SMSF funds. Keeping the invoice mentioning the name of your SMSF fund is a good idea. You should keep extensive records for any transaction and always check with the SMSF compliance team before making any transactions. You can always consult the best crypto tax accountant Perth to avoid any problems in the future.