With interest in Crypto-currencies on the rise in Australia, some trustees have asked the question ‘can my SMSF invest in Bitcoin, and if so what do I need to be aware of?’
Following are a number of key areas that trustees need to consider if they are looking to invest money from their SMSF into Crypto-assets, such as Bitcoin:
• Does your trust deed allow it?
• Does your investment strategy allow it?
• Ensure the investment meets the sole purpose test
• Don’t purchase from a related party
• Ensure you can confirm ownership and existence, for audit purposes
• Ensure is it appropriately stored
Does the trust deed allow it?
Review the Fund’s Trust Deed to ensure that the investment is allowable under the governing rules? If not, then you will need to update the trust deed.
Investment strategy – Review and update to ensure compliance
It is a legislative requirement that all SMSFs have an Investment Strategy. The strategy should be in writing and reviewed regularly to ensure it reflects the purpose and circumstances of the Fund. It should consider the following:
• Whether or not it is appropriate for the Fund to hold life insurance policies for each of the members
• The risk of the Fund’s investment
• The diversity of investments of the Fund
• The liquidity of the investments
• The ability of the fund to discharge its present and future liabilities
• The member’s needs and circumstances
If the Fund was to invest in Cyrpto-currency, trustees would need to update their investment strategy to include this investment class.
Sole purpose test – ensure no financial benefit to trustees personally
The sole purpose test ensures a superannuation fund is maintained for the purpose of providing benefits to its members upon their retirement (or attaining a certain age), or for beneficiaries if a member dies.
Trustees cannot directly or indirectly obtain financial benefit when making investment decisions, other than increasing the returns of your fund through the investment.
Bitcoin and other crypto-currencies have affiliate programs in place, where a current account holder can refer users and subsequently earn a percentage of the trading fee from all referred users – including all future purchases and sales.
The sole purpose test would likely be breached if trustees (or related parties of the Trustees) personally established a crypto-currency account, signed up as an affiliate, and then set up an SMSF account using that affiliate / referral code – as they would personally receive affiliate commission from the SMSFs investment activities.
Ownership & existence of the Crypto-assets
Crypto-currencies are an intangible asset – ie they don’t physically exist. SMSFs are audited each financial year, so if you are considering investing in crypto-currencies in your super fund, it is important that you are able to confirm the Fund owns and controls the investment. The assets are purchased via a coin exchange company, which are generally set up using the name and email address of an individual – ie currently there is no provision for SMSFs to open an account. Some tips to assist in confirming that a crypto-currency investment is held by an SMSF include:
• Utilising a SMSF specific email address to register the coin exchange account – helps to show that the assets are separate to any other accounts in the name of the trustee personally
• Do not transact Bitcoin or other crypto-assets between the SMSF account and a personal account in the name of the members
• Linking a SMSF bank account to the coin exchange account
• Ensure all trading transaction reports and tax invoices are retained and provided to your SMSF administrator / auditor as they occur
• Obtain a wallet balance report showing the holdings at 30 June each year.
Storage of your Crypto-assets
Investors have the option of keeping their crypto-assets within the online wallets, or transferring them to an offline wallet. Please refer to information on the bitcoin website (bitcoin.com.au) will provide you with further information.
How is it taxed?
The assets are taxed on capital account, which means that there is a capital gain or loss when the investment is sold. Trading fees or commissions form part of the cost-base of the asset and can’t be claimed a tax deduction.
If you would like further information, please don’t hesitate to contact our office.