ATO Rules on crypto in a SMSF.

Are you interested in setting up a self-managed super fund (SMSF)? A fund where you get to make all your investment decisions and are in complete charge and are held responsible for complying with the super and tax laws. It’s a major financial decision that requires time and skills that can act as a future savings option once you retire. It is fun that is run to provide retirement benefits for the members or their dependents.

In the last decade, about AUD 227 million was invested into Australian self-managed super funds, which is growing daily. It should come as no surprise as people are looking for ways to multiply their wealth by investing in Crypto via SMSFs. ATO has also recognised this buy, adding Crypto to the list of assets approved to be held by SMSFs in June 2019. ATO has laid down some rules for investments in Crypto, such as:

  • Must be allowed to come under the fund’s trust deed
  • Must be by the fund’s investment strategy
  • The fund must comply with SISA and SISR regulatory requirements

Other than the rules mentioned above, the ATO has stated that the fund must maintain and be able to provide evidence of a separate crypto wallet for crypto investments. The ATO also recommends that SMSF trustees and members must always consider the risk of crypto investments before proceeding. With Crypto, market liquidity and volatility, one should always take the investment decision wisely and refrain from investing in limited liquidity coins. It is the reason why the ATO recommends having a diversified portfolio. Also, some rules apply to cryptocurrencies in self-managed super funds (SMSFs) that we will discuss down below:

Trust Deed Investment Strategy and Risk

Investment real estate, stocks and shares generate money; there are arguments for and against cryptocurrencies’ legitimacy as investments due to their volatility. The Australian Taxation Office (ATO) allows artwork, gold, antiques, and cryptocurrencies as a type of asset. For this, the Trust Deed of your SMSF must have a clause letting the SMSF hold crypto assets just the same as artwork, gold, antiques, and collectables.

Sole Purpose Test

It is a test that provides retirement benefits to its members or to their dependents if the members die before retirement. Under the Superannuation Industry (Supervision) Act 1993, every Self managed super cryptocurrency fund must go through the sole purpose test. That sole purpose test is to ensure that the investment must be made solely through their SMSF and can’t be clubbed with personal assets.

Wrapping Up

The ATO encourages trustees to work with their professional advisors if they think they breach the superannuation laws. By this, the members can rectify the violations as soon as possible. Once they fix the breach, they can inform the ATO about that as a voluntary disclosure.

Note this is not financial advice but produced for information purposes.

Thinking of investing in a crypto based SMSF or need help with the tax, audit and compliance of your SMSF. Feel free to contact us