How To Optimise Your Poorly Performing Crypto Portfolio Using SMSFs
In recent times, the volatile nature of the cryptocurrency market has left many investors with poorly performing portfolios. The value of these investments has dwindled, making withdrawal decisions difficult and losses significant. However, there’s a strategic approach that could help you make the most out of your situation while capitalising on the benefits of your Self Managed Super Fund (SMSF).
Moving Your Crypto to Super: A Game-Changing Strategy
If you find yourself in a situation where your crypto portfolio has seen better days, it might be tempting to cut your losses and move on. But before you do that, consider an innovative solution that could not only help you salvage your investments but also provide tax benefits and potential future gains.
Leverage Your SMSF and SMSF Wizard
Enter the world of Self Managed Super Funds. The team at SMSF Wizard will guide you towards a strategic approach to restructure your crypto portfolio, maximise tax benefits and potentially see future gains.
By following a series of steps, you can navigate the process of transferring your crypto holdings into your SMSF.
The Step-By-Step Guide
Sell your crypto portfolio: Start by selling off your underperforming crypto until the balance reaches zero. This will help you create a capital loss, which can be carried forward to offset future capital gains.
Contribute to your SMSF: Contribute the remaining funds (from the sale of your crypto portfolio) to your SMSF as a concessional member contribution. This action provides you with a tax deduction for the contributed amount, subject to proper documentation.
Purchase Crypto Holdings in your SMSF: With the funds in your SMSF, purchase the same crypto holdings you previously owned, This move ensures that you maintain exposure to the cryptocurrency market while benefiting from the tax advantages of your SMSF.
Real-Life Example: Tom’s Triumph
Let’s take a look at Tom’s situation to see how this strategy plays out. Tom owns a crypto portfolio with the market value of $11,000, which initially cost him $17,000. He earns an annual income of $145,000. By selling his crypto holdings, he creates a capital loss of $6,000, ready to offset future capital gains.
Tom contributes the $11,000 to his SMSF and subsequently purchases his crypto, he will receive an allowable dedication of $11,000, provided that he completes the appropriate documentation, which SMSF Wizard will take care of. This contribution allows Tom to claim a tax deduction of $11,000. As a result, Tom’s individual tax return receives an extra refund of $4,290.
In summary, Tom retains the same exposure to the crypto market, gains an additional $4,290 in cash, and secures a future capital loss of $6,000 to offset potential gains.
Key Considerations
While this strategy holds promising benefits, a few important points must be considered:
You cannot directly transfer your Crypto into your SMSF (See ‘in-specie contributions).
You cannot purchase this off a member directly, as it is not classed as a business real property or listed shares.
Contribution Caps: Due to contribution caps (concessional currently set at $27,500), this approach may need to be executed over several years to maximise its effectiveness.
No Drawdowns: Once the contribution is within the SMSF, it cannot be withdrawn unless the conditions for benefit withdrawal are met.
Investment Ownership: The crypto investment must be held in the name of the super fund, ensuring compliance with regulations.
Summary
The volatile nature of the cryptocurrency market doesn’t have to mean all hope is lost. By strategically utilising your SMSF and partnering with SMSF Wizard, you can turn a poorly performing crypto portfolio into a tax-efficient, potentially profitable opportunity.