Cryptocurrency in an SMSF

Cryptocurrency is everywhere. Most SMSF Trustees now know someone that has it and is relentlessly telling them they should have it too. It has become so popular that SMSF Advisers and Accountants are having to get skilled up on all things SMSF Cryptocurrency. This has prompted Australian Securities and Investment Commission (ASIC) to issue some direct warnings to SMSF trustees to remind them of their responsibilities when it comes to how they invest within their SMSF, particularly when there has been a large spike in scams and marketing targeting SMSF Trustees.

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Here are some unique challenges for Advisers, Accountants, and Trustees when it comes to investing in Crypto in an SMSF.

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SMSF Investment Strategy

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Just like all investments in the SMSF, Crypto Investments need to be documented in the fund’s Investment Strategy. Crypto Investments are considered by Regulators including ASIC to be High Risk Investments due to the volatility of their value.

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SMSF Trustees are required under the Super Laws (s.52(2) SIS) to “exercise…the same degree of care, skill, and diligence as a “prudent superannuation trustee” on behalf of the beneficiaries of which it makes investments”. An SMSF Trustee needs to get specific to show it has prudently considered the “high risks” when it comes to their decision to invest in Crypto.

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Typically, the Auditor will be looking for an appendix to the Investment Strategy that covers off:

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• Investment Considerations including an acknowledgment that the Crypto Investment is high risk and how it meets the member's retirement objectives and cash flow requirements,

• Rationale for the Crypto Investment including confirmation that the Trustees understand the investment and the platforms that manage it and documenting the cash flow requirements of the members,

• Mitigation of Risk including how the Crypto Investment will be stored and protected.

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How to keep the SMSF Auditor Happy and the SMSF Administration Costs Down

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SMSF Trustees can keep it simple by working with their SMSF Auditor to confirm the ways in which they can demonstrate SMSF compliance when it comes to their Crypto Investments.

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For example:

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• using an Australian based coin exchange or brokerage firm that allows the correct recording of ownership and insurance in the name of the Self Managed Super Fund

• ensuring the SMSF bank account is properly linked to the exchange

• If using Hot Wallet Storage, taking screenshots of the exchanges on 30 June (including making sure that the screenshot shows the date)

• if using Cold Wallet Storage, taking screenshots of the Blockchain.com search on 30 June using an Australian Tax Reporting platform that gathers Crypto Investment transactions into a single tax report

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SMSF Trustees need to take heed of their trustee responsibilities for prudent investment and record keeping and understand that this new, unregulated market is considered high risk by our Regulators.

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Find out more about how Lifetime SMSF can help you manage your SMSF here