SMSF investing in Cryptocurrency

June,29,2022

According to the Australian Taxation Office ATO, few SMSF Deeds allow for the investment of Cryptocurrency; even if allowed, whether the trustee should invest in Cryptocurrency is another matter. In this article, we elaborate more on new requirements for SMSF deeds and we highlight some important aspects to know when it comes to SMSF investing in Cryptocurrency. However, keep in mind that it is essential to consult with your financial planner before making such a decision – if it is the right one for you.

Drafting SMSF Deeds to invest in Cryptocurrency

The best practice in what an SMSF Deed, SMSF variation, and Investment Strategy should contain:

1.       the definition of Cryptocurrency should be both inclusive and not exclusive – especially as it continues to evolve

2.       the expressions of Cryptocurrency should include:

·         digital currency

·         derivatives

·         Cryptocurrency CFD trading

·         blockchain currency

·         currency

·         contracts for difference

3.       all means of cryptocurrency storage, including hardware wallets, software wallets, wallets, and even no wallet at all, should be explicitly permitted

4.       specific references to "synthetic financial products" should be found to allow for the exciting world of leveraging. 

5.       fluctuation in the price of shares and other indicators of title and other financial instruments should be included to demonstrate the subject beyond doubt:

·         stock indices 

·         commodities

·         currencies

·         cryptocurrency 

 

Not sure whether or not investing SMSF in cryptocurrency is your best option?

Leave it up to us!

 

Does SMSF identify as a Cryptocurrency asset?

Cryptocurrency is a private and anonymous form of payment. That's how it's supposed to be. To date, only sovereign states have authority over currency and money.

Cryptocurrency's 'anonymous' nature is problematic for an overregulated entity like a Self-Managed Superannuation Fund. It should be held particularly by the SMSF trustee and for the SMSF. Cryptocurrency investments made by an SMSF must be held and managed separately. The SMSF, for example, maintains its own cryptocurrency wallet.

The SMSF auditor and the ATO look for the following evidence:

§  the currency is purchased from a bank account used solely by the SMSF;

§  SMSF Minutes;

§  the trading account clearly shows the trustee is acting in the SMSF's capacity

§  keeping all documentation of the transaction and the indicia of title

§  keeping exchanges of emails between your accountant and financial planner that relate to the Cryptocurrency

 

Call us for guidance on SMSF and your investment options.

Is cryptocurrency considered ‘money’ for an SMSF?

Money is not included in the definition of 'acquiring an asset.' Cryptocurrency is a kind of payment. It is a medium of exchange for buying and selling. However, the ATO does not recognise cryptocurrency as a form of payment. It is neither Australian nor international money. 

How does the SMSF value its cryptocurrency for ATO?

SMSFs must guarantee that their bitcoin investments are valued, noting that like most assets, the value of cryptocurrency fluctuates. This is by the Australian Taxation Office's (ATO) value guidelines.

Australian SMSFs investing in Cryptocurrency overseas

Cryptocurrency is a form of digital money that is accepted all over the world, but if a trustee buys Cryptocurrency with foreign cash or through foreign organisations, currency fluctuations against the Australian dollar may need to be factored in by the trustee. Furthermore, certain overseas exchanges, do not grasp the SMSF requirement that assets be held in the name of the SMSF trustee and not in the beneficiaries' names, and that can be problematic.

Is it possible to withdraw cryptocurrency from my SMSF when I retire?

When a member meets a criterion of release, he/she can begin to withdraw money from their SMSF. A member can make an in-specie lump sum contribution if the SMSF Deed is properly prepared. The trustee can do this by transferring the cryptocurrency into the member's name directly. A pension payment, on the other hand, can only be made in cash.

 

If you have additional questions about investing SMSF in cryptocurrency, reach out to one of our Create and Protect Financial Planners!

 

Disclaimer:The information included in all of our blog content is of general nature only. Any general advice included in this information has been prepared without taking into account your objectives, financial situation or needs.
Because of this, you should consider the appropriateness of the general advice to your objectives, financial situation and needs and obtain professional advice before acting on any general advice that we have provided to you.

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