When it comes to investing in cryptocurrency, many individuals overlook the tax consequences of potentially high levels of performance returns. A recent client case highlights the complexities of managing capital gains tax (CGT) when transferring crypto assets from personal ownership to a more tax-effective structure, such as a company, trust, or SMSF. With significant gains already accruing, understanding the CGT implications is critical before making any changes to how you hold the investment.
The client circumstance presented as follows:
An individual investor invested the sum of $50,000 into a cryptocurrency. Now that some time has passed and the original investment values at $300,000 the investor wishes to restructure the investment ownership of the holding from a personal name holding to a more tax effective structure, either a company, discretionary trust, or self-managed super fund (SMSF), dependent upon whichever suits the circumstance best. This decision becomes even more pressing when the investor anticipates the holding to increase toward $500,000.
The key issue the investor is seeking to manage is capital gains tax (CGT).
Transferring the cryptocurrency holding (and most other investment holdings such as property, shares, managed funds) from one individual to another person or entity will trigger a disposal for CGT purposes, meaning the individual will need to recognise and record the capital gain based on the market value at the time of transfer.
The taxable gain will be calculated as:
- $300,000 (current holding value) – $50,000 (initial investment) = $250,000 capital gain
- Given the individual is an investor and not a trader, the CGT discount (50% for assets held longer than 12 months) will apply, provided the individual qualifies by holding the investment for greater than 12 months.
- The gain will be included in the client’s taxable income in the year of transfer.
Rollover Relief – Any Available Concessions?
There are no specific rollover provisions for transferring passive investments (such as cryptocurrency) from an individual to a company, discretionary trust, or SMSF as the Small Business Entity (SBE CGT) concessions apply only to businesses with active assets. Cryptocurrency (and other assets) held as an investment does not qualify as an active business asset.
Thinking of restructuring your cryptocurrency (or other) investments? Don’t let capital gains tax catch you off guard. At Holzworth Partners, we can help you navigate the tax implications and assess the most effective structure for your circumstances.
Book a consultation today and make smart moves with your crypto strategy.
This information is intended as a guide only and professional advice should be sought for individual circumstances.