Understanding how staking rewards are taxed when you hold cryptocurrency in your SMSF
25 Aug
25 Aug
Disclaimer: The content provided in this blog post is for informational purposes only and does not consider your personal financial circumstances. Please conduct your own research and consult with a qualified financial advisor before making any investment decisions. The volatile nature of the cryptocurrency market carries inherent risks, and individual circumstances may vary.
If you're earning staking rewards on your crypto holdings in your SMSF, you probably know the rewards appear in your wallet. What you might not know is how they're taxed. And that matters more than you'd think.
Here's the key distinction. When you buy Bitcoin and it goes up in value, that's a capital gain. When you hold Ethereum and earn staking rewards, that's income.
This distinction matters because income and capital gains are taxed differently in an SMSF.
In accumulation phase, staking rewards are taxed at the SMSF's ordinary income tax rate, which is 15 per cent. That's actually quite good compared to personal tax rates where you'd pay your marginal rate potentially up to 45 per cent.
But it's not the same as a capital gain. It's ordinary income.
When you receive staking rewards, you need to record them immediately. Don't wait until year end. Record:
The date you received the reward. The amount in crypto terms (how many ETH or tokens you received). The AUD value on that date. The source (which blockchain or staking protocol).
That AUD value on the date received is critical. That's what gets included in your SMSF's assessable income for tax purposes. Not the value today when the crypto might be worth more or less.
When your accountant prepares your SMSF tax return, all staking rewards you received during the financial year get added to your assessable income. Your SMSF pays 15 per cent tax on that amount in accumulation phase.
This is separate from any capital gains or losses you made on buying and selling crypto. The staking income stands on its own as ordinary income.
Here's where it gets interesting. If your SMSF moves into pension phase, ordinary income becomes tax free. That includes staking rewards.
Once your SMSF is paying pensions, staking rewards are no longer subject to the 15 per cent tax. They're tax free income.
That's a powerful reason to move into pension phase if you're earning significant staking rewards. The tax saving can be substantial over time.
You hold 10 Ethereum in your SMSF. During the year you earn 1 ETH in staking rewards. On the date you received it, ETH was worth $4,000. So you record $4,000 in staking income.
Your SMSF pays 15 per cent tax on that $4,000, which is $600.
If you later sell that 1 ETH for $5,000, you have a capital gain of $1,000 (the $5,000 sale price minus the $4,000 cost base). That capital gain gets the 15 per cent concessional rate if you've held it over 12 months (effective 10 per cent after the one-third discount).
So the staking income is taxed at one rate and the subsequent capital gain is taxed at a potentially different rate. They're separate events.
If you're staking through a crypto platform or exchange, they usually handle the reward distribution automatically. Your job is to track those rewards and report them.
If you're staking through a protocol like Ethereum's beacon chain where you run your own validator, you still need to record the rewards. They don't disappear just because you earned them through technical means.
Either way, record them when you receive them and track the AUD value on that date.
People often forget to include staking rewards in their SMSF tax return entirely. They focus on capital gains and losses and forget about the income side.
Don't do that. Include all staking rewards. Your SMSF auditor will look for them. If you have a staking wallet, those rewards need to appear on your SMSF's tax return.
Another mistake is valuing staking rewards at today's price instead of the price on the date received. Use the price on the date you received the reward. That's the income amount for tax purposes.
If you're earning significant staking rewards, plan your pension phase transition strategically. If you're close to pension phase, it might make sense to wait before transitioning so you can earn tax-free staking income once you move over.
Work with your accountant on the timing. The tax saving can be worth the planning effort.
Staking rewards are income, not capital gains. They're taxed at 15 per cent in accumulation phase and tax free in pension phase. You need to record them when you receive them using the AUD value on that date. They need to appear on your SMSF tax return separately from any capital gains or losses.
Get this right and you're fine. Forget about it or record it wrong and your audit becomes complicated.
For more detail, see the ATO's guidance on Staking rewards and airdrops (QC 69950)
If you’re intrigued by the notion of investing in cryptocurrencies via SMSF but find yourself overwhelmed by the initial steps, Consensus Layer is here to assist you. As a team of seasoned crypto tax and accounting specialists, we are well-versed in navigating the complex landscape of crypto investments. Let us be your trusted guide in ensuring compliance with superannuation and tax laws. We pride ourselves on delivering exceptional client service while championing the growth of the crypto industry.
Investing in cryptocurrencies through SMSF offers an exciting opportunity for crypto enthusiasts who firmly believe in the long-term potential of digital assets. However, it’s crucial to grasp the risks involved and the compliance requirements before embarking on this journey. Seek professional advice, choose an Australian crypto exchange that caters to SMSFs, and if you need expert assistance, reach out to our SMSF Specialist Advisor, David Fam at Consensus Layer, on 07 3569 3701 or email him at david@consensuslayer.com.au. Together, we’ll navigate the intricate world of crypto taxes and accounting to help you unlock the full potential of your superannuation!
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