Is Bitcoin an investment that you should be considering for your SMSF? In this article, we’ll explain how your SMSF can buy and sell bitcoins and comply with legislation and the tax implications for bitcoins in the SMSF environment.
See our Crypto Tax in Australia article for more information about the taxation of crypto in Australia.
How can I buy and sell bitcoins in my SMSF?
If you want to buy bitcoin as an investment for your SMSF, there are a few things you need to ensure::
1. That the bitcoin and the accompanying digital wallet are purchased in the name of your fund.
Under no circumstances should it be purchased in the name of an individual SMSF member. It is a legal requirement for an SMSF Trustee to separate the fund’s assets from its individual members’ assets. This will ensure that the bitcoin investment satisfies the sole purpose test of the SMSF, i.e. to provide for their members’ retirement needs.
Failure to satisfy this sole purpose test can lead to severe penalties, including fines and the loss of your SMSF’s tax concessions.
Ideally, your SMSF should have a single digital wallet to make accounting for transactions easier and more transparent. The proceeds of the sale of any bitcoins should be transferred to your self-managed super fund’s bank account and you declare any profit or loss you have made as part of your fund’s annual reporting.
2. That your SMSF trust deed has no restrictions on investing funds in assets like cryptocurrencies.
3. That the investment complies with your self-managed super fund’s diversified investment strategy.
It’s a legal requirement for SMSFs to have an SMSF investment strategy. Your fund’s compliance with this strategy is one of the things that is checked as part of your annual SMSF audit.
Because bitcoin and other cryptocurrencies are a very new investment type, your investment strategy would likely need to be revised to consider this option. This should be done in full consultation with the members of your SMSF, considering their short, medium and long-term needs as well as their risk profile (e.g. conservative/risk-averse, moderate or aggressive). It’s wise to seek professional advice.
4. That the digital wallet used to store your SMSF bitcoins is secure and ideally insured.
5. That you make your fund’s auditor aware of the investment at your next audit.
It is a legal requirement for your self-managed super fund to be audited each year. Bitcoin assets are valued at the prevailing market rate at the end of each financial year (i.e. 30 June) during this process.
6. That your SMSF does not acquire bitcoin from one of its members or a related party.
All self-managed super funds must be arm’s length transactions.
You can buy and sell digital currencies like bitcoin via digital wallet services like Coinbase and Xapo. You use traditional currency (e.g. Australian dollars in your SMSF’s bank account) to buy it. You can also sell your bitcoins for other currencies via these digital wallet services (just like you can with Australian dollars or any other currency).
Trading fees are charged by service providers for buying and selling transactions, usually based on the value of the transaction.
It’s important to remember that an SMSF bitcoin investment is just like any other superannuation investment. You won’t be able to access it until your reach your preservation age. Your preservation age depends on your date of birth, as illustrated in the table below
The most common superannuation condition of release is retirement, provided you have reached your preservation age. This age depends on your date of birth, as outlined in the table below:
| Date of birth | Your preservation age |
| Before 1 July 1960 | 55 |
| From 1 July 1960 until 30 June 1961 | 56 |
| From 1 July 1961 until 30 June 1962 | 57 |
| From 1 July 1962 until 30 June 1963 | 58 |
| From 1 July 1963 until 30 June 1964 | 59 |
| On or after 1 July 1964 | 60 |
What are the tax implications for bitcoin in SMSF?
The Australian Tax Office (ATO) takes the view that bitcoin transactions are like a barter arrangement and they are taxed accordingly. The ATO confirmed in a recent determination that it doesn’t currently regard it as a form of foreign currency.
No GST is charged on the buying or selling of bitcoin. However, it is regarded as an asset for CGT (Capital Gains Tax) purposes. This ruling was confirmed in a recent ATO determination.
If you sell bitcoins and convert them to Australian dollars, you may be subject to CGT. This rate is currently 10% for self-managed super funds selling assets that have been held for longer than 12 months.
However, if you are currently drawing an SMSF pension, selling bitcoin would not attract CGT under current Australian superannuation laws.
However, as bitcoin and other cryptocurrencies are still relatively new, their tax treatment in relation to self-managed super funds may change over time.
The potential risks of SMSF investments in bitcoin
Although bitcoin can be used to pay for goods and services if sellers of goods and services are prepared to accept them, it is not legal tender. This means that it does not have the backing of any bank or government, unlike traditional currencies like the Australian dollar, which is backed by the Reserve Bank and the Australian government.
The value of bitcoin can therefore potentially be more volatile. That can be great if the value is rising, but not great if the value were to fall significantly. Members of your self-managed super fund need to be aware of the risk that bitcoin could fall in value and be prepared to accept that fact.
Investing in bitcoin is not a suitable investment strategy for SMSFs with risk-averse members. You don’t want to gamble your self-managed super retirement nest egg in a speculative investment like bitcoin unless you can afford to take a risk to potentially achieve higher returns as part of a diversified investment portfolio.
Digital currencies like bitcoin can also potentially be stolen from your digital wallet by online hackers, just like traditional currencies can be stolen by thieves. You have little hope of getting your SMSF bitcoin asset back if it is stolen.
You also have little protection against unauthorized or incorrect transactions being made from your digital wallet.
In addition, people trading in bitcoin can also be relatively anonymous. This makes the currency attractive to criminals who may want to use it for money laundering or other illegal activities.
This article is general information only and does not provide advice to address your personal circumstances. To make an informed decision you should contact an appropriately qualified professional.