Recently a colleague of mine asked me to ring a client who wanted to know if his SMSF could invest in Bitcoin, a Cryptocurrency.
The general story I got was that the trustee did not have enough capital to invest in property, but had been following the Cryptocurrency market with interest.
Wow, it never seems to amaze me how quickly the world changes and how those changes obviously impact all aspects of life including the investment opportunities on offer. The question asked by the client is a valid one.
So let’s look at key principles associated with a SMSF investing in Cryptocurrency .
Under Australian tax law Cryptocurrency is defined as an Asset. As with all Assets actively traded, its value can rise and fall and when this prompts a disposal a gain or loss can be assessed under the Capital Gains Tax provisions of the Income Tax act.
Now it is common knowledge that a SMSF can receive favorable treatment under the Income Tax Act when compare to other taxpayers.
So I had a bit of an understanding as to one of the motivations prompting the clients’ initial question.
So what are the key points I was prepared to discuss with this client?
The short answer to his question is yes a SMSF could invest in Cryptocurrency provide:
- The investment is allowed under the funds trust deed and meets Sole purpose Test.
- The fund has formulated an Investment strategy that allows for such an Investment.
- The Investment must be held in the name of the SMSF.
- The Investment must be kept separate from the member’s personal assets.
- The purchase of the investment must be at arms-length from a non-related party.
- The asset must be kept save and secure consider a cold wallet.
- The assets should be valued according to the ATO guidelines.
- It should be acquired on an Australian-Base exchange
A quick review of the valuation charts associate with Bitcoin over the last few years sheds some insight as to the volatility of the investment and the risk profile of the client. Cryptocurrency is a high-risk investment but it does not mean a SMSF cannot invest in the asset class.
It is at this that it is prudent to remember that the main purpose of Superannuation is to help fund a quality of life and wellbeing in retirement.
With that in mind a Cryptocurrency can play a part in a well structure and thought out Investment Strategy with the aim of reducing potential risks. Poole Group can help you understand the key principle of your Investment Strategy
By David Darrant – Poole Group Superannuation Division
If you would like to book in an appointment with David, please contact us on the below options:
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Brooke has had 10 years of experience helping businesses in her roles as a tax accountant, Virtual CFO and bookkeeper. She is passionate about helping business owners, women in business in particular, understand their figures better and empowering them with the tools and the support to grow their businesses and adhere to their goals. She has a keen interest in the e-commerce space.