The content in this article is provided for general information purposes and is not tax, legal, investment or other professional advice. Readers should seek appropriate professional advice prior to making any decision.
“Can I invest in Bitcoin using my SMSF?” This is a question I’m hearing more and more lately. The simple answer, yes, it is possible. The important part, you better get it right.
Before I proceed, please note that this article is for educational purposes only and is not investment advice. (From 1 July 2016, advice about superannuation has to be provided through an Australian Financial Services Licence. Munro’s is authorised to provide personal advice to it’s clients in relation to superannuation and self managed superannuation funds – see details, including a list of authorised personnel – on the Wealth page of Munro’s website).
I’m receiving enquiries from people all around Australia relating to bitcoin tax issues, and a hot topic is investing in bitcoin using a Self-Managed Superannuation Fund (“SMSF”). At present, the only way I know how an Australian can own bitcoin within the superannuation system is to have their own SMSF.
A SMSF can be a good choice if you want to take direct control over your retirement savings, but with control comes great responsibility. Each member acting as trustee of their SMSF is responsible for investing the funds of the SMSF and ensuring the SMSF complies with the law. Failure in either can be devastating.
You are responsible for deciding whether investing in bitcoin using your SMSF is a prudent decision. Bitcoin is young technology with possibly great potential, but it experiences enormous volatility and its future is anything but certain. Whether or not bitcoin is a suitable investment within a SMSF can depend on, amongst other things, the risk appetite of the members, their age, the amount invested and the total funds of the SMSF. It is up to you to make this assessment.
Before investing in bitcoin using a SMSF, you need to make certain this is allowed by the governing rules of the SMSF. The investment strategy of the SMSF then must permit the investment. Both of these documents can be updated from time to time, so they shouldn’t present an insurmountable barrier to investing in bitcoin using a SMSF.
Next, the SMSF acquires the bitcoin. Generally, SMSFs are not permitted to acquire assets from members (except money and listed securities). In the ATO’s opinion bitcoin is not classified as “money”, which means the SMSF cannot acquire bitcoin from its members. The SMSF likely has to acquire the bitcoin through an exchange.
The SMSF’s bitcoins need to be securely stored. The SMSF needs to consider whether insurance is necessary. The bitcoins must never be transferred to a member’s personal wallet as this could cause the SMSF to become non-complying. If your SMSF becomes non-complying you may be subject to severe penalties (civil and criminal), the SMSF loses its concessional tax rate and the assets may also be taxed. SMSFs are highly regulated, subject to annual audits, and so it is imperative you do things by the book.
Each year the SMSF must be audited before lodging its tax return. The Auditor will need to sight evidence to verify the bitcoin holdings, the purchases and transfers, and confirmation that the SMSF owns the bitcoin. Also, since bitcoin is new, most Auditors are unlikely to be familiar with bitcoin, so they’re likely to set the bar high in terms of checking off on the SMSF’s bitcoin activities.
If the SMSF sells bitcoin, then this will also trigger taxing consequences. One of the common scenarios asked of me is what is the tax payable from selling bitcoin that has been held for many years? The likely tax outcome is that this is taxable as a capital gain (or loss). Bitcoin held for more than 12 months by the SMSF should qualify for the CGT discount, which is 33⅓% for a SMSF. The ordinary concessional tax rate for a SMSF is 15%, which means the ordinary capital gain concessional tax rate (ignoring capital losses) is 10% (e.g. a capital gain of $50,000 results in $5,000 tax payable). However, if a capital gain on the disposal of bitcoin is made whilst the SMSF is in retirement phase, then the tax rate could be as low as 0%.
Running a SMSF is an onerous and important task, and you must always keep in mind that the SMSF’s sole purpose is to provide retirement benefits for its members. If you think bitcoin can help achieve this and want to pursue investing in bitcoin using a SMSF, then it is wise to speak with qualified professionals who are familiar with both bitcoin and superannuation.
Munro’s is an accounting firm located in Perth with experience assisting people from across Australia with the establishment of Self-Managed Superannuation Funds and ongoing tax compliance matters. We also have experience providing income tax advice on bitcoin and cryptocurrencies in general. If you are in Perth, please feel welcome to arrange a meeting at our office, or if you are elsewhere, then please do not hesitate to arrange a phone consultation. We’d love to hear from you.
P.S. The general industry rule of thumb is you need at least a $200,000 balance before you should consider setting up a SMSF, otherwise the administration costs may be prohibitive.