Feb 7, 2023 Joel Hernandez

Self-Managed Super Funds and Crypto

Self-Managed Superannuation Funds (SMSF) can provide greater flexibility on the range of asset classes into which you can invest. One asset class gaining more attention recently is cryptocurrency. However, owning cryptocurrency in a SMSF structure can be fraught with compliance risk due to the strict superfund rules under the SIS Act.

There are several areas of concern when it comes to holding cryptocurrency in a SMSF structure:-

1. Investment Strategy: the SMSF investment strategy must articulate the plan the trustees intend to adopt, and the reasons behind holding a particular asset class. Crypto is consider a high risk speculative investment, and under the control of a central bank or authority. One would expect the trustees to provide an explanation why they believe crypto will achieve their retirement objectives and how they plan to mitigate its inherent risks, such as price volatility and operating in an unregulated market.
2. Separation of Assets: SMSF investments must be held in the name of the SMSF and separate from personal assets. This can be particularly tricky with crypto because a wallet typically needs to be set up and connected with a personal credit card. Therefore there should be sufficient evidence that the wallet is specifically established in the name of the SMSF, and adequate security controls are in place to prevent personal use of the crypto. It is imperative not to have crypto transactions between the SMSF and personal accounts. Best practice would require trustees to create a separate email address specifically used by the SMSF, rather than a personal email address.
3. Valuation: SMSF investments are to be recorded at market value. The ATO will accept a value of crypto published on a crypto coin exchange, and trustees must obtain historical value reports showing closing values.
4. Sole purpose: The overriding principle is that the SMSF must provide retirement benefits to its members. Therefore it would be a contravention of the rules if the members derived a benefit from its investments. This would mean that the SMSF cannot use crypto like everyday currency to purchase goods and services on the member’s behalf.

Trust Deed: Your Trust Deed must allow for cryptocurrency assets. Most SMSF trust deeds are drafted broadly to enable trustees to invest in assets permitted by the superannuation laws and leave the investment strategy to manage the choice of assets and their appropriateness. However, it is important to check.

While there is nothing inherently wrong with holding cryptocurrency in a SMSF, trustees must be take reasonable steps to mitigate the compliance risks.

If you wish to know more, just contact our office.