Our SMSF provider only completed our 2024-25 financial year accounts at the end of April. I check these carefully before signing off and paying the ATO. They have made mistakes in capital gains calculations in the past.
I thought that was the case this time too for our investments in the Fidelity Bitcoin ETF and Defi Technologies. So, I challenged their calculation. Their response was that the numbers were correct if I converted the purchases and sales to Australian Dollars using spot exchange rates on the exact days of the transactions.
I don't use this method in my own tax accounting, as it is complicated. I just take the gain in USD or CAD and multiply by the exchange rate on 30th June of the tax year in question. I thought this was pretty close. It turns out it's not!
The gain on the bitcoin transaction was USD 19k. I downloaded the exchange rates from Pacific Exchange Rate Service, which I use for all my forex calculations, on each transaction day–there were many purchases–and multiplied the USD amounts by those exchange rates. Then I deducted the sum of all the purchases in AUD from the sale amount in AUD. The capital gain turned out to be AUD 53k!
This is as if the Australian Dollar to US Dollar exchange rate was 35 cents, when it was never below 60 cents. The reason this happened was that I sold when the exchange rate was only 60 US cents but bought at higher exchange rates. Given the USD gain was not that big relative to the size of the transactions, the difference in exchange rates was levered up into a large AUD gain. I never thought something this extreme was possible.
The Defi Technologies gains were not as radically different in the two currencies because I made more money on those relative to the size of the transactions. The tax bill for the bitcoin trade of AUD 8k is more than half of the SMSF's annual tax bill of AUD 14.4k.
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