Rising inflation in the Australian economy and the accompanying effect it has on interest rates typically results in stunted investment markets, but could be an opportunity for SMSFs to invest in cryptocurrency, according to an online trading educational platform.
HedgewithCrypto founder Kevin Groves suggested these market conditions, in conjunction with the upcoming federal election, could present an opportune moment for SMSF trustees to invest in crypto-assets that can generate high returns.
“When interest rates rise, many SMSF account holders would decide to make adjustments within their portfolio to take advantage of the higher interest rates with something different, like cryptocurrencies,” Groves said.
“Cryptocurrencies are a high-return and high-risk asset, and they may bring suitable investment opportunities to assist in meeting your retirement goals.
“There won’t be much action taking place right now when it comes to investment due to higher interest rates and the ‘wait-and-see approach’ in the lead-up to the election. It could be a good opportunity to reassess – with a professional – your superannuation fund and whether it is set up to meet your goals for the future.”
According to Groves, the returns available are not the only benefit SMSFs can achieve through an allocation to cryptocurrencies as certain tax advantages can also be enjoyed.
“In Australia, the maximum tax rate on SMSF-held digital assets is 15 per cent. If the assets are held for more than one year, then the concessional tax rate is 10 per cent,” he said.
“It is important to note that if the disposal or sale of crypto is undertaken while members of the crypto SMSF are in a pension phase, then capital gains incurred will be exempt from taxation altogether.”
But he warned SMSFs interested need to consider the level of knowledge and expertise required in order to make suitable financial choices and the upfront costs of acquiring cryptocurrencies.
“As with any investment strategy, there are also some disadvantages to consider when it comes to crypto SMSFs,” he said.
“Knowing your legal and regulatory obligations, including taxation and audit requirements, and bringing in independent professional advice will form important steps along the journey.”
The ATO will be discussing the topic of SMSF investments in cryptocurrencies at the selfmanagedsuper SMSF Professionals Day 2022. Click here to register.