The prominence of cryptocurrency can make it look attractive to invest in crypto through your Self-Managed Super Fund (SMSF), but you should be aware of all of the matters you need to consider before you make any investment.

Cryptocurrency in an SMSF must:

• Be allowed under the fund’s trust deed.
• Be in accordance with the fund’s investment strategy.
• Comply with the same regulatory requirements that apply to other investments.

Regulations

Australian superannuation fund regulators face challenges in monitoring and regulating trustees who invest in cryptocurrency via their SMSF.

The rules applying to traditional SMSF investment also apply to cryptocurrencies, with regulators focusing on whether cryptocurrency in an SMSF is providing a genuine retirement-directed investment. To assess whether SMSFs can invest in cryptocurrencies, the ATO will examine two key factors:

• Whether an investment in cryptocurrency would satisfy the sole purpose test; and
• Whether the investment strategy would satisfy the requirements for a SMSF.

Demonstrating Ownership

Owning cryptocurrency through an SMSF can also pose challenges in proving ownership since they are typically stored on online wallets, only identifiable by a public ledger address. To combat this challenge, a comprehensive record of all trading activities should be maintained.

These records should show that transactions are solely between the SMSF bank account and wallet. Moreover, the trust deed should state that the SMSF is the beneficial owner of the crypto.

Keeping SMSF & Personal Assets Separate

To comply with ATO regulations, it’s necessary to keep cryptocurrency acquired through an SMSF separate from personal assets. Transferring crypto between a personal wallet and the SMSF’s wallet is not allowed, as it could violate the sole purpose test and make it hard to determine SMSF asset ownership.

Valuing Crypto Held by a SMSF

All Australian SMSFs must follow the ATO’s guidelines in valuing their assets. Currently the ATO will accept the market price of digital currency as published by the cryptocurrency exchange on 30 June. The valuation should be objective and data-supported.

Approved SMSF auditors need to conduct yearly audits to ensure asset valuation is reasonable, robust, and data-backed.

As always, you should seek professional and specific advice when it comes to your investments and/or your superannuation fund. Our Crypto Tax Specialist Team can be contacted via email – crypto@armada.com.au