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How is cryptocurrency taxed within superannuation?
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.
Every year Australians save thousands of dollars in tax by investing through superannuation fund accounts. How? Because earnings made within superannuation benefit from lower than average tax rates. This has meant that some forward looking Australians have saved substantial sums of tax by investing into cryptocurrency using their Self-Managed Superannuation Fund (“SMSF”).
Before we proceed, please note, we do not advocate investing in cryptocurrency, nor do we provide financial advice. The following is provided as general information specifically relating to taxation. You may wish to seek professional tailored advice before making any decisions.
To explain the tax benefits of cryptocurrency using a SMSF, we’ll run through an example situation:
Dan has a full-time position earning a salary of $90,000 per year. In late 2016 Dan’s SMSF had a balance of $250,000. This was invested in traditional markets such as shares and term deposits. Dan heard about bitcoin and thought there was a chance it could become widely adopted, which could then increase its value. Dan decided to use $25,000 of his SMSF balance to buy 25 bitcoins because he thought it was a prudent investment decision to expose a small part of his SMSF investments to potential earnings arising from this asset class. In mid-2017 the value of the 25 bitcoins was $50,000 so Dan sold 15 bitcoins to recover slightly more than the initial investment. In early-2018 the remaining 10 bitcoins were worth $200,000 and Dan sold half (5) to move funds into less volatile investments.
Dan’s SMSF has made one purchase of 25 bitcoins at price of $1,000 each. He sold 15 bitcoins for a price of $2,000 each and a further 5 bitcoins for a price of $20,000 each. There are two taxable disposals.
The sale of 15 bitcoins in mid-2017 gives rise to a gain of $15,000. This is calculated as follows:
Sale proceeds = 15 bitcoins × $2,000 = $30,000
Cost = 15 bitcoins × $1,000 = $15,000
Gain = $30,000 – $15,000 = $15,000
These 15 bitcoins were owned by the SMSF for less than 12 months, which means 100% of the gain is assessable. The superannuation tax rate is 15%, which means tax on the gain is $2,250 (15% × $15,000).
If Dan had instead personally owned these bitcoins outside of superannuation, tax payable would have been $5,850 – the SMSF pays $3,600 less tax.
The sale of 5 bitcoins in early-2018 gives rise to a gain of $95,000. This is calculated as follows:
Sale proceeds = 5 bitcoins × $20,000 = $100,000
Cost = 5 bitcoins × $1,000 = $5,000
Gain = $100,000 – $5,000 = $95,000
The SMSF owned these 5 bitcoins for more than 12 months, which means the CGT discount reduces the taxable amount by 33⅓% – $31,667 (33⅓% × $95,000). The taxable gain is therefore $63,333 ($95,000 – $31,667). Applying the superannuation tax rate of 15%, tax payable on the gain is $9,500 (15% × $63,333).
If Dan had instead personally owned these bitcoins outside of superannuation, tax payable would have been $18,525 – the SMSF pays $9,025 less tax.
If the SMSF continues to hold the remaining 5 bitcoins and Dan is 65 years of age, then the eventual disposal of the bitcoins afterwards may be tax-free if Dan has commenced taking a pension from his SMSF. So, for example, if the 5 bitcoins are later worth $35,000 each the SMSF pays no tax, whereas if the bitcoins were personally owned by Dan he would have paid $33,150.
For further information on cryptocurrency and superannuation, visit our Superannuation page. Munro’s Cryptocurrency Accountants can help you set up a SMSF, and we also provide full service accounting and taxation management of your SMSF.