SMSF Crypto Accountants Australia | Crypto SMSF Setup & Compliance
Your Self Managed Super Fund (SMSF) is able to invest in a broad range of Crypto assets including Bitcoin, Ethereum all the way through to $TRUMP. The key rules are that your SMSF Deed and SMSF Investment Strategy allow the fund to invest in digital assets and that the fact the holdings belong to the SMSF can be evidenced for the annual SMSF audit.
Crypto SMSF’s have become more and more common with many trustees choosing to hold digital assets. As time has gone by this popular asset class is now easier than ever to hold in a Self Managed Super Fund with many exchanges such as Swyftx and Coinstash having product offerings designed entirely around the SMSF space.
Crypto SMSF annual package: $1,600+GST per year
Our Crypto funds fees are fixed and we do not charge extra for cold wallets or penalise you depending on what exchange you decide to use. Our fixed annual package includes the annual accounts, SMSF tax return, a free electronic service address to meet the ATO SuperStream requirements, our registered office, ASIC agency, and the independent audit coordination with our independent audit panel along with the crypto audit evidence guidance.
How does the ATO treat Crypto in an SMSF?
In their wisdom the tax office has determined that it is not cash or a medium of exchange but rather an unlisted style of asset that may be held and traded by the fund. So although many clients use it as a digital encrypted, and decentralised medium of exchange the ATO views Crypto slightly differently which effects its tax treatment.
Keep in mind that regulations of the Crypto SMSF space are still in their infancy with the government still fiddling with the laws governing Crypto and associated exchanges. For clients who choose to use exchanges we always recommend using Australian ones registered with AUSTRAC which are most likely to be familiar with and compliant with Crypto SMSF laws and reporting obligations.
There are also banking challenges with some banks completely blocking transfers to and from Crypto Exchanges. We recommend the ANZ V2 Plus product which our team can help clients setup as part of the SMSF Setup process and is one of the most Crypto friendly bank accounts available.
What storage solutions are recommended for holding crypto in an SMSF?
Crypto is typically stored in a digital wallet for the SMSF which is classified as a hot wallet or a cold wallet. The differential is whether the wallet is connected via the internet which is classified as a hot wallet or alternatively a cold wallet which is not connected via the internet but, instead stored offline and must be connected to a physical device (often called a hardware wallet or cold storage) before the owner can send or sign transactions.
A custodial wallet is usually a centralised digital currency exchange where your private key is stored on another party’s server. A non-custodial wallet is a private key which is held individually and not on somebody else’s server. A hot or cold wallet can be either custodial or non-custodial but a cold wallet is usually non-custodial.
We have some great information on how SMSFs hold Crypto in cold wallets compliantly in this blog here:
Can my SMSF invest in Cryptocurrency?
Yes, provided you have a modern compliant SMSF Deed it will allow for the trustee to make the decision to invest in digital assets including Cryptocurrency. It is important to note the there is nothing in superannuation legislation prohibiting an SMSF from holding digital assets.
How much does a Crypto SMSF Cost per year?
Our model is to have a simple flat fee for clients based on their investments covering the annual accounting work, provision of your electronic service address, the annual tax return, the registered office and ASIC agency work and the independent audit. It only costs $1,600+GST per year for a Crypto SMSF regardless as to whether you are on an exchange or using a cold wallet.
Do I need to include Crypto in my SMSF Investment Strategy?
Yes it is always important to ensure your SMSF Investment Strategy matches your actual investment selection, including for digital assets. The Fund’s investment strategy is required to be reviewed and updated. The investment strategy should be updated to acknowledge the risk of the investment and why the trustees consider the risk as reasonable based on the members’ risk profile and the circumstances of the Fund.
This is one of the most common areas we see clients trip up on during the funds annual audit as many trustees forget to ensure the strategy as well as the Deed are setup compliantly. From an SMSF Auditors perspective the ATO has put the spotlight is on the investment strategy which can be critical as part of the evidence for them to sign off on the fund as compliant when it chooses to hold digital assets.
If you are unsure if your Deed or Investment Strategy is compliant feel free to reach out to us for support.
Does my SMSF Trust Deed allow for Investment into Cryptocurrency?
It is really important to double check your SMSF deed especially if it was bought from a cheap online deed churner (which are often not up to date) or is an older deed. Many SMSF deeds, especially older ones, do not specifically allow an SMSF to invest into Digital Assets or Cryptocurrency. However, some deeds will include a general catch all phrase which allows the SMSF to invest in “any other asset permitted by SISA & SISR”.
Can my SMSF purchase Crypto from a member of the Fund?
No, the fund is unable to purchase Crypto from a related party including a member of the fund. The Superannuation Industry Supervision Act 1993 specifically prohibits an SMSF from acquiring an asset from a member or a related party (including a relative) unless it comes under one of the few exemptions. The ATO has ruled that Cryptocurrency and other Digital Assets is not one of the exemptions.
What are the Tax Consequences of Holding Cryptocurrency in an SMSF Account?
Crypto is subject to capital gains tax in the SMSF. Thus, any losses are quarantined against capital gains and cannot be used to offset against ordinary taxable income of the SMSF. Any costs associated with acquiring or trading the asset will be directed towards the cost base and not immediately tax deductible.
The tax rate of 15 percent applies but capital gains can be reduced to 10 percent if the crypto is held for more than 12 months or up to 100 percent tax free if the SMSF is in total pension mode when it is sold.
Risks and Consideration When Investing in Crypto with Your SMSF
Apart from the investment risk there are other risks such as:
- Compliance breaches which are discussed below.
- Death, marriage breakdown and loss of capacity– ensure the private key and password to access the wallet is stored safely and is accessible. Otherwise, the investment could be lost if a trustee dies, or some other event happens. The Fund should document how and where the wallet details have been securely stored.
- Scams -Phishing scams are on the rise and can be challenging to detect. Often using a cold wallet where the wallet is not connected to the internet and the key is stored offline is more secure but is harder to access and use. A hot wallet is connected to the internet and has a higher risk of malfunction and being hacked but is a lot more user friendly. Whilst a wallet can be at risk of scammers the encryption and two-factor authentication certainly lower the risk of this happening.
Record-Keeping and Reporting Requirements for Crypto Investments by SMSFs
Auditors need to confirm the existence, the legal ownership and valuation of the asset as at 30 June as well as ensuring the Crypto SMSF has complied with other important Superannuation Rules and Regulations.
- An auditor can verify existence and ownership of each wallet and each type of Crypto held within a cold or hot wallet or through an exchange or custodial wallet with the following documentation:
- wallet ID
- a full year transaction history
- a holding statement or signed trustee declaration showing the balance as at 30 June
- any trustee declaration must confirm the wallet is used and owned wholly and exclusively by the SMSF and if a cold wallet it must state the location of the device and it is securely stored
- provide a copy of the paperwork requesting the application to acquire the crypto to show the SMSF is the purchaser
- Valuation of the crypto assets can be confirmed with the following:
- market valuation in AUD at 30 June
- confirm price via Crypto price website
- copy of receipts/invoices or a transaction listing or check receipts/payments to the Fund’s bank statement
Other significant compliance issues are as follows:
Sole purpose test – ensure the genuine reason for having the investment is to grow the members’ retirement savings and not because you simply want to dabble in this risky but potentially very profitable investment. Having an updated investment strategy showing the reasons for the risky investment is very helpful and ensuring all investments are made at arms length and are in the trustee’s name on account of the fund.
Investment Strategy – update the Fund’s investment strategy for the crypto investment and provide the trustees reasoning to acquire this type of investment and how it meets the objective of the members and the Fund.
Separation of assets – it is critical to verify the title is in the name of the Trustee on account of the fund. If the title of the wallet is in individual names and the trustees of the Fund are the same individuals it is very difficult to verify if the wallet is owned by the Fund.
Prohibition on acquiring assets from members or related parties – do not transfer a wallet from a member, relative or other related party to the fund. Provide a signed declaration to confirm that no cryptocurrency was purchased from a member or related party of the Fund.
Charge over the assets – do not allow the wallet to be security for another asset as it is prohibited.
Pensions -must be paid in cash and not crypto or other digital assets.
Crypto SMSF – Frequently Asked Questions
Some frequently asked questions are briefly discussed below. The responses are guidelines only and you should discuss the following with your SMSF Accountant if you have a specific issue you need support with.
Can an SMSF invest in crypto?
Yes provided that the fund has an appropriate deed and investment strategy allowing the investment. All the documents you will receive from SMSF Australia allow a broad range of investments including digital assets.
Crypto SMSF setup: what needs to be done before buying Bitcoin or crypto
Before buying crypto in your SMSF review the SMSF Deed and investment strategy ensuring it is compliant with the investment and reach out to your SMSF accountant and auditor and make sure they are comfortable supporting funds with digital assets. You will then need to consider whether you use an exchange to make your purchases and whether you want to leave them on exchange or use a cold wallet for long term investment holding.
How can I include Crypto like Bitcoin in their SMSF investment strategy?
Investments in Crypto, such as Bitcoin, can be added to the SMSF’s investment strategy by drafting and adopting a Trustee minute or resolution showing the details of the investment decisions and how the SMSF needs and the fund members needs and objectives are being met. The SMSF trustee should also consider updating the original investment strategy. As part of our fixed fees we provide investment strategy templates for clients to use when they need to update their strategy.
What are the ATO guidelines for investing in cryptocurrencies through an SMSF?
The Australian Taxation Office guidelines for SMSF investors include three basic requirements.
- The fund’s trust deed must allow for the investment in crypto with your SMSF.
- The super fund must ensure the cryptocurrency investment complies with the Superannuation Industry rules and regulations such as those discussed above at “Record-Keeping and Reporting Requirements for Crypto Investments by SMSFs”.
- The crypto investment must be in accordance with the fund’s investment strategy and ensure the SMSF objectives are met.
How does investing in crypto assets align with the sole purpose test of an SMSF?
A SMSF trustee can include crypto in the SMSF portfolio as part of a strategy to diversify the SMSFs investments. It is possible to get exposure to cryptocurrency where the crypto assets are held legitimately for the purpose of providing retirement benefits for members. The Australian Taxation Office are also particularly concerned when a member or trustee obtain a fee or commission from using the Crypto SMSF assets to personally financially benefit themselves.
How can an SMSF effectively integrate Bitcoin and other cryptocurrencies into its portfolio?
It is critical to ensure crypto assets are held and managed separately from personal assets. Verification that the SMSF has clear ownership is vital. The SMSF must be able to provide evidence to show the crypto wallet is held in the name of the SMSF. The documentation when the crypto is first purchased should provide support that the asset is intentionally purchased by the SMSF and not personally by the members or the trustee. The purchase should be paid directly from the bank account for the Crypto SMSF wherever possible noting that some backs are not at all Crypto friendly currently.
The Key Takeaways
- An SMSF can invest into Crypto and it is a common and popular investment choice
- It is imperative to create or update the Fund’s investment strategy to allow for digital assets
- When it comes to the annual audit evidence is it’s existence is key along with proof it is owned by the SMSF and not personally
- Always review your deed in detail or get it professionally checked by your SMSF Accountant before you start your Crypto SMSF journey.
- Protect, secure and document your private key and password to access your wallet
Do you want to learn more about SMSF and Crypto? Give us a call on 1300 392 544 or get in touch online.
We also have some information on particular exchanges and how they work with an SMSF including:
