In this edition of Ask Colley, Graeme Colley answers “What do I need to know if I’m including bitcoin in my SMSF?”.
Q. What do I need to know if I’m including bitcoin in my SMSF?
A. The chat around the holiday traps regarding superannuation this year was bitcoin, bitcoin, bitcoin. Specifically, can I hold bitcoins in my SMSF and what are the implications of doing this?
Well as a semi-literate IT guy like me, I’m certainly not going to make any call on bitcoin as an investment and whether it’s worth buying bitcoin at any price, let alone at the inflated prices the so called crypto-currency was trading at towards the end of 2017.
Frankly, I don’t understand how they work and where they derive their value, but when it comes to whether you can include them in your SMSF and what the implications are of doing so, this is where I’ve done a little bit of work.
One source of truth relating to bitcoin in super, of course, is what the Tax Office has to say on the matter.
As the Tax Office sees it, a bitcoin, or any other crypto-currency for that matter, is a barter arrangement where the bitcoin itself is exchanged to acquire goods and services.
It’s not money or foreign currency, however, it can be seen like an investment which may have tax consequences.
For Capital Gains Tax purposes, the ATO says bitcoin is an asset, so that any increase or decrease in its value between the time of purchase or sale may result in a capital gain or loss. This is probably the most important thing for retirees and savers to understand about the quasi-currency.
Ok that’s all fine and good, but how do you put a bitcoin into an SMSF?
The fact is there’s no difference between the SMSF acquiring an asset like shares, property and so on, and acquiring a bitcoin.
However, there is a slight catch: if you have a bitcoin in your name and wish to put it in the fund, maybe as a contribution, then that’s not ok because the super rules wouldn’t allow it.
The reason for this is that there’s a limit on what you can put in the fund from your personal assets and investments, and bitcoin is one of them.
If the fund sets up an account called a “wallet”, it could purchase bitcoin from non-related third parties. This is the way in which the SMSF could become a bitcoin “investor” – if you want to call them that.
I recently had a chat with an SMSF auditor and she told me that the auditor would seek proof that the bitcoin really existed, and it was indeed owned by the fund. Proof in this instance would include things like: dates of transactions, the amount in Australian currency, the purpose of the transaction and the counterparty involved.
Based on the conversations I’ve had, one thing I know for sure is that you’ll need to show auditors the whole thing is legitimate and documented, otherwise you could end up with compliance issues.
Using bitcoin for personal transactions – that is, if you can find a place that accepts the currency – of course is another matter entirely than when it’s considered an asset within a fund like an SMSF.
When you use bitcoin for a transaction personally, there’s no income tax or GST implications if you are not in business or carrying on an enterprise and you simply pay for goods or services in bitcoin. Any capital gain or loss from disposal of the bitcoin when you’re using it to purchase goods or services for personal use or consumption is disregarded provided the cost of the bitcoin is $10,000 or less.
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