Can Your SMSF Buy Crypto?
Cryptocurrency assets have shown stellar gains these past months, but adding them to your SMSF portfolio can be quite complex. There are several regulatory requirements to be considered that indirect exposure to the asset class via a third-party provider can be a more practical option.
Still, if you want to use your SMSF for crypto investments, consider the factors discussed here.
Things to Consider
Before you invest in cryptocurrencies through your super, take note of the following factors that may affect the taxes and validity of your transactions.
Ownership of Crypto Assets
Crypto accounts made in Australian-based cryptocurrency platforms must be set up in the SMSF name, not in the personal name of the trustee that wants to invest in the asset. SMSF cryptocurrency investments must be held separately from the personal and business investments of its members. This means there must be a separate crypto wallet for SMSF funds from the ones used by members and trustees personally.
Overseas exchanges usually do not know about SMSF, so they’ll set up accounts in the individual names of the trustees instead of the SMSF. This breaches SMSF laws and can result in penalties.
The ATO has issued two taxation determinations ((TD 2014/25 and TD 2014/26) stating that bitcoin and similar cryptocurrencies are not counted as money but considered as capital gains tax (CGT) assets.
Cryptocurrency investments must be valued according to ATO guidelines. The value must be in AUD and must be obtained from a digital currency exchange or platform that publicly publishes its rates.
Transacting Crypto Assets In SMSF
SMSFs can make in-specie lump sum payments through the transfer of cryptocurrency. However, pension payments must be in cash and not in cryptocurrency transfer. SMSFs cannot acquire crypto assets from related parties.
If you’re holding cryptocurrency assets outside your SMSF, you cannot transfer or sell them to your super. Purchasing cryptocurrencies through your super must be from an independent third party unrelated to your or your SMSF.
Leveraging your SMSF to purchase crypto isn’t recommended because this action will breach the non-arm’s length rule in super funds. Doing so will add the risk of the income being taxed at top marginal rates.
Requirements and Restrictions
SMSFs are not prohibited from investing in cryptocurrencies but they must follow certain rules.
First, the SMSF must allow the trading of crypto assets in its trust deed.
Second, investing in crypto must be within the fund’s investment strategy. Cryptocurrencies are risky assets because they’re unregulated. Trustees and members must review their fund strategy to make sure that putting money in crypto assets is still within the fund’s investment strategy.
Third, SMSFs must comply with SISA and SISR regulations and investment restrictions.
SMSFs must use an Australian-based cryptocurrency platform to trade crypto assets. Accessing the data and information needed to track trading activities is easier and simpler this way compared to doing it on a foreign-based exchange.
Risks in Investing in Crypto
The ASIC warns about investing in cryptocurrencies through SMSF and has released guidelines to help investors learn more about the risks involved in putting money in such assets.
Before investing in cryptocurrencies through SMSF, it’s best to talk to an accountant first and see what SMSF auditors need to see in adding the asset class to the super portfolio. Screenshots of transactions may be needed throughout the year to account for the investments in crypto assets.