Crypto and SMSFs in Australia
An SMSF is a ‘self-managed super fund’, commonly known as an alternate way to save for retirement. The ‘self-managed’ element means the responsibility for complying with super and tax laws lies with the SMSF’s members, rather than a large company.
With $227 million AUD worth of crypto assets as of December 31, 2021 being incorporated into Australian self-managed super funds, it’s important to understand how the relationship between SMSFs and crypto currently works in the Australian legal landscape.
The ATO’s current stance on crypto and SMSFs
The ATO has provided a set of guidelines that outline their current stance on the use of crypto in SMSFs. We’ll go through these in detail below, but it’s important to note that documentation is key in having compliant SMSF crypto holdings.
The ATO’s guidelines include:
- SMSFs may invest in crypto provided it is allowed under the fund’s deed and in accordance with its investment strategy.
- SMSFs must have clear ownership of the crypto in question. Legal documentation of this ownership is critical, especially for non-exchange wallets which have no ownership details by default
- SMSFs that invest in crypto must do so in accordance with ATO valuation guidelines for SMSFs.
On top of these guidelines, there are also a series of rules that need to be understood in order for any crypto involvement in an SMSF to be compliant. These include:
- Cryptocurrency is not currently defined by the ATO as a ‘listed security’, therefore it doesn’t fall within the related party transaction rules. Therefore, crypto assets cannot be acquired from a related party.
- An SMSF must be maintained for the sole purpose of providing retirement benefits to trustees and members, or to their dependants if a member or trustee dies before retirement.
- Where a trustee or member satisfies a condition of release, the SMSF can make an in specie lump sum payment by way of transfer of crypto. The transfer of crypto assets amounts to a crypto transaction and a CGT event happens.
As seen by the metrics provided in late 2021 showing the growth of crypto investments in SMSFs, we expect this space to continue to grow and change. As an example, the introduction of ETF’s for Bitcoin and Ethereum is imminent. This will make it easier for both SMSF Trustees and Auditors to manage and prove ownership of crypto assets.
The present challenges
Challenge 1: As it currently stands, if you or your client (if you’re an SMSF member) is interested in investing in cryptocurrency as part of an SMSF, you will need to confirm that the investment is:
- Allowed for under the fund’s trust deed
- Be in accordance with the fund’s investment strategy
- Comply with SISA and SISR regulatory requirements concerning investment restrictions
As you can imagine, when it comes to a brand new asset class such as crypto, navigating legal waters can be a difficult task.
Challenge 2: In order for an SMSF to be able to prove the ownership and existence of the related crypto assets for the independent audit of the fund, the crypto account must be in the name of the SMSF. This can get complicated as some exchanges don’t enable SMSF accounts to be registered. In addition any associates storage or custody services or cold storage wallets, must be kept seperate and paid for by the SMSF and appropriate receipts kept.
Challenge 3: While it may seem appealing to invest all of your retirement savings in one particular crypto asset (or solely in crypto in general), this could increase a trustee’s risk. It’s important to consider diversifying SMSF portfolios to minimise return, volatility and liquidity risks. these decisions should be documented in the SMSF Investment Strategy.
Challenge 4: Remember that sole purpose test we mentioned earlier? You and/or your SMSF professional adviser will need to have enough of an understanding of this core Regulation . In a nutshell the fund needs to be maintained for the sole purpose of providing retirement benefits to the SMSF members. A fund will not meet the sole purpose test if the trustees or anyone else, directly or indirectly, obtains a financial benefit when making investment decisions and arrangements (other than increasing the return to your fund).
When investing in crypo you need to make sure that SMSF members don’t recieve any additional personal benefits as contravening the sole purpose test is very serious. In addition to the fund losing its concessional tax treatment, trustees could face civil and criminal penalties.
Challenge 5: An SMSF fund must have its own crypto wallet, separate to any used by trustees for personal or business purposes. The wallet used for SMSF purposes will need to have a transaction listing for each separate crypto asset which can be brought forth as evidence in the case of an audit.
You can read more of the challenges outlined by the ATO here.
How to accurately maintain crypto records for SMSF purposes
SMSF trustees have extensive administrative, reporting, and record-keeping obligations to ensure that their fund complies with superannuation and taxation regulations - and this doesn’t change when crypto assets are incorporated into an SMSF.
The ATO states that SMSFs have to keep detailed records of:
- Receipts when you buy or transfer crypto assets pertaining to the SMSF fund (including but not limited to the date and time of the transaction, the value of the crypto asset in Australian dollars at the time of the transaction, and what specifically the transaction was for)
- Exchange records relevant to the SMSF fund
- Records of agent, accountant and/or legal costs
- Trustee minutes relating to the SMSF’s crypto investment strategy
- Digital wallet records and keys
While it is possible to maintain records of all of these details manually, it can be a nightmare trying to keep track of the minutia of details. That’s where we come in! SMSF trustees can use CryptoTaxCalculator, which will give the trustee the ability to import data from any source relevant to the SMSF’s crypto holdings, as well as automatically track and categorise cost base, fees, and any gains or losses made. By providing a trustee with this information, it makes the task of ensuring an SMSF stays compliant much easier.
Disclaimer: The content of this guide is for general informational purposes only. It is not legal or tax advice. Viewing this guide, purchasing or using CryptoTaxCalculator does not create an attorney-client relationship or a tax advisor-client relationship.
The information in this guide represents the opinions of experienced crypto tax professionals; however, some of the topics in this guide are still subject to debate amongst professionals, and tax authorities could ultimately release guidance that conflicts with the information in this guide. The information contained in this guide is based on the authors’ interpretation of current guidelines. Changes to the guidelines may be retroactive and could significantly alter the views expressed herein. Therefore, use this information at your own risk and for information purposes only.
Consult a professional regarding your individual tax or legal situation.
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