Cryptocurrency has been a hot topic in the news of late. The surge in the price of Bitcoin between June 2020 & March 2021 has piqued investors wishing to explore new and unusual wealth-growing methods.
The lucrative nature of crypto has seen a rise in SMSF’s investing in digital currencies. However, the investment’s speculative and decentralised nature has garnered attention from the ATO, who will be cracking down on regulatory requirements and tax obligations.
Here are some key things you need to know before you decide to invest in crypto within your SMSF.
Crypto is NOT a Cash Investment
In 2014, the ATO released tax determinations (TD 2014/25 and TD 2014/26) which stated the nature of cryptocurrency for tax purposes. Crypto is, in fact, a ‘CGT Asset’ for subsection 108-5(1) of the Income Tax Assessment Act 1997.
These determinations cleared some confusion for investors, as many assumed the investment was a ‘Foreign Currency’ and thus attracted different tax treatments.
The effect of this decision is as follows:
As cryptocurrency is considered a CGT asset, the investment will trigger a capital gains tax event if the sale of units attracts a profit. Conversely, a capital loss event will commence if unit sales attract a loss.
The costs involved in trading crypto are not classified as a tax deduction, thus should instead be accounted for in the asset’s cost base.