In recent years, many Australians have been looking to invest their money and become financially independent. This has seen an increase in the number of self-managed super funds (SMSF) and investments in cryptocurrencies (crypto) such as Bitcoin or Ethereum.
As both have risen in popularity, many Australians have begun asking if the two can be combined and have their SMSF invest in crypto.
In 2022, the Australian Tax Office (ATO) updated its guidelines for SMSFs to invest in crypto.
The ATO outlines three requirements for SMSFs regarding in crypto. The investment:
- must be allowed under the fund’s trust deed
- be in accordance with the fund’s investment strategy
- comply with the same regulatory requirements as applies to other investments.
The ATO also states that crypto assets are not a form of money but are considered capital gains tax (CGT) assets. SMSFs must keep full records of their crypto transactions when acquiring, disposing, or even transferring between different types of crypto assets.
If your SMSF is considering investing in crypto, here are some important things you need to know.
Review your plan
Before any investment in crypto can be made, the SMSF’s investment strategy must be reviewed and updated to permit the type of investment. This allows trustees and members the opportunity to review the level of risk involved in investing in crypto.
Be clear
According to super laws, trustees and members are obligated to keep the assets of their fund separate from their personal assets. This applies to crypto assets as well, which must be managed and stored apart from the personal or business investments of the trustees and members.
The ownership of the crypto assets must be clearly established, with the SMSF maintaining its own separate crypto wallet, distinct from those used by the trustees and members for personal purposes. The fund must be able to produce evidence of this separate wallet upon request.
Fair valuation
Trustees of SMSFs must make sure that their investments in crypto assets are valued as per the ATO’s valuation guidelines for SMSFs. The value in Australian dollars must be determined by the fair market value, which can be retrieved from a trustworthy digital currency exchange or a website that openly publishes its exchange rates.
Related party transactions
Crypto assets do not fall under the category of “listed securities” and cannot be acquired from related parties. This means that SMSF trustees and members who are considered related parties of the fund cannot make contributions or transfers of crypto assets to the fund.
Retirement in mind
The sole purpose of maintaining an SMSF is to provide retirement benefits to the members, or to their dependants in a case of death before the retirement of a member.
Ensuring your trustees and members know the requirements and regulations for SMSFs investing in crypto can help to avoid breaching super laws, which when breached can result in significant tax costs and penalties.
If you have any questions regarding SMSF investing in crypto assets, contact us.
