Crypto as Part of the Wider Portfolio

How Smart Structuring Turned Adam’s Crypto into a Tax Efficient, Well Protected Investment Strategy

Most crypto investors treat their digital assets separately from the rest of their wealth. They hold tokens personally, track them in a spreadsheet and think about tax only when the return is due.

Crypto should never sit off to the side. Once you have a trading business, a trust, property or other investments, the ownership structure of your crypto becomes an important financial decision. Put it in the wrong place and you lock yourself into higher tax, zero protection and limited flexibility. Put it in the right place and you gain access to lower tax rates, safer ownership, group tax benefits and a structure that can grow with you.

This case study outlines exactly how we approached this for Adam, a mortgage and insurance adviser whose crypto portfolio was becoming a meaningful part of his net worth. The steps, the mechanics and the reasoning are all explained below so you can see how to apply the same thinking to your own portfolio.

Adam’s starting position

Adam owned his mortgage and insurance business through a company, but the shares were held personally. He also held all his crypto personally, simply because that is how he began investing years ago.

On the surface, this looked harmless, but it created several limitations. Any profits from his crypto were taxed at his personal marginal rate, which was significantly higher than the company rate. Losses could not be used anywhere else. There was no separation between his personal wealth and business risk. And his trust, which had been set up years earlier, was not actually being used to own anything.

We began by cleaning up the foundation so we could make smarter decisions about where the crypto should sit.

Step 1: Moving the operating business into the trust

The first step was to reposition Adam’s business under his family trust. The shares were sold in the mortgage and insurance company from Adam personally to the trust at full market value. Adam retained one share himself to continue to receive a shareholder salary. It is important that this is not done informally. We completed a proper sale process, documented the transaction (trustee resolutions) and recorded the value clearly (share valuation etc).

Because the trust did not pay cash for the shares, we recorded a debt back to Adam using a deed of acknowledgement of debt. This debt can be forgiven gradually as part of standard trust gifting. This step provided asset protection for the trading business and made the trust the central owner of Adam’s wealth. With that in place, we could now consider how the crypto should integrate into the same structure.

Step 2: Deciding where the crypto should be owned

The next decision was whether the crypto should sit directly in the trust or in a separate company owned by the trust. Holding the crypto directly in the trust would provide solid protection and would simplify long term estate planning. However, it would not provide any tax advantage, and it also created some risk for the Trustees (particularly the independent trustee).

Crypto profits in a trust would either be taxed at the trust rate of 39 percent or be distributed to beneficiaries at their personal rates. Either way, this placed Adam permanently above the 28 percent company rate.

We then considered whether a separate company, owned by the trust, would create a better outcome. This structure would allow profits from the crypto to be taxed at 28 percent inside the company (on crypto-to-crypto transactions), which is significantly lower than Adam’s personal rate.

It would also create a clean ledger for all crypto activity and protect the rest of the group from the volatility and risk that naturally comes with digital assets. Because the trust would own both the trading business and the new crypto investment company, we could also elect for group tax status in the future. That meant losses from the crypto activity could potentially offset profits from the mortgage and insurance business, or cash could flow between the two companies (i.e., profits reinvested, and ring fence the tax at 28 percent). For someone like Adam, whose main company consistently produces profit, that flexibility was significant.

Given these advantages, the decision was made to create a new company owned by the trust to house all crypto activity.

Step 3: Moving the crypto into the new company

Transferring the crypto from Adam personally into the new company required more care than most people expect. The transfer must occur at market value on the date of the transaction so that both sides of the transfer are tax accurate and defensible. We valued the crypto using prices from the exchanges Adam used and set the market value for each asset being transferred. Yes, this did result in a taxable event for Adam, however it was not significant because he had already made previous transactions that realised the gains on his tokens).

We then drafted a formal sale and purchase agreement. This document recorded that the new company was purchasing Adam’s crypto holdings at full market value. The company did not pay cash for the transfer. Instead, it recorded a debt back to Adam through a deed of acknowledgement of debt, which sat on the company’s balance sheet. This is the correct way to move crypto into a company you control without triggering unnecessary complications. The transfer is clean, documented and easily traceable if Inland Revenue ever requests information.

We then recorded the accounting entries. On Adam’s personal side, he recorded a disposal at market value and recognised a receivable from the company. On the company side, the crypto was recognised as an asset and the matching debt was recorded. This ensured that both the personal and company records were aligned and that the ownership transfer had a clear audit trail.

Step 4: Unlocking group tax benefits

By having the trust own both the operating business and the crypto investment company, we were able to bring the entities into a group structure. This allows losses from one company to be offset against profits of another, provided the correct elections are made. In Adam’s case, this means that if his crypto company ever has a down year, those losses can help reduce the taxable profits of his mortgage and insurance company.

The structure also allowed the companies to move cash to each other without additional tax and made it easy to move funds within the group without triggering extra obligations. These benefits are often missed by investors who hold everything personally, because personal ownership is siloed and cannot be connected to business profits.

Step 5: Creating long term alignment

Once the structure was clean, we brought Adam’s entire investment strategy together. His trust now owns the trading business and the crypto investment company, which means every part of his wealth sits under a consistent ownership framework. His ETF holdings could be aligned with the same structure so that the treatment of indirect crypto exposure and on chain exposure matched. Future growth can now be managed easily, whether he adds new exchanges, a second investment company or a different asset class (such as a GST registered commercial property investment).

He also now has a clear pathway for scaling his crypto activity. A proper set of accounts will be maintained annually. Dividends can be declared strategically. Profits can be retained at 28 percent for future reinvestment. And when the time comes to extract wealth, the trust provides a tax efficient and flexible way to distribute income or fund long term goals.

What Adam avoided

Through this restructure, Adam avoided the common traps we see every week. He avoided locking himself into permanent personal tax rates. He avoided the situation where losses are stuck personally and cannot help his business. He avoided the mistake of holding crypto inside his trading entity, which creates unnecessary risk. And he avoided the messy, undocumented transfers that cause serious problems in an Inland Revenue review.

Once you view crypto as part of your full portfolio, not a separate project, everything becomes clearer. The right structure connects your business, your trust and your investments into one strategy that protects what you have, lowers your tax and grows with you. Adam now has a structure that supports his goals, works across entities and gives him options he never had before.

If you want the same level of clarity and alignment across your business, trust and crypto investments, we would love to help. The earlier you set this up properly, the more you save and the more flexibility you keep for the future.

 *Name changed for anonymity