CRYPTOCURRENCY & BITCOIN ADVICE QUEENSLAND
With the surge of Bitcoin being repeatedly in the headlines recently many investors, including SMSF Trustees, are considering investing in Bitcoin and other cryptocurrencies.
So, can an SMSF invest in cryptocurrencies? The brief answer is yes. However, please read on!
As in all things new to do with your SMSF it is advisable to contact your Stratogen Accountant to discuss the issues before acting.
SMSF Trustees must be extremely careful to ensure any investment made in cryptocurrencies does not result in a breach of the Superannuation Supervision (SIS) Act.
The key legislative areas SMSF Trustees need to consider before making an investment in cryptocurrencies include:
Does the SMSF Deed allow such an investment?
Checking the trust deed to ensure that it does not prevent the trustee investing in cryptocurrencies is paramount.
Bitcoin and other cryptocurrencies are part of a relatively new asset class that are unlikely to be included as possible investments under the SMSF deed. This is especially so with older SMSF deeds.
The Sole Purpose Test
The sole purpose test in SIS ensures that an SMSF is maintained for the sole purpose of providing retirement benefits to members, or to their dependants in the event of a member’s death.
This means the trustees or any related party cannot obtain a financial benefit when making investment decisions and arrangements on behalf of the SMSF.
Many cryptocurrency exchanges pay commissions where a percentage of trading fees are paid to the person who referred the account holder.
In relation to an SMSF, if a trustee receives any commission from the SMSF’s investment activities in cryptocurrency the sole purpose test would be breached.
Proving Ownership and Separation Issues
Investments in an SMSF must be clearly identifiable as being owned by the SMSF and clearly separate from assets held by the SMSF trustees in their personal capacity.
Cryptocurrencies are purchased via a coin exchange company using cash. Usually the process is that money is transferred from the investor’s bank account into an online cash account with an coin exchange provider. The balance in this account is then used to purchase Bitcoin or other cryptocurrency.
Some Australian based coin exchanges will only set up an account in the name of an individual. However more and more coin exchanges are enabling the opening of an account in the name of an SMSF and thus being compliant with SIS and most importantly keeping their auditors happy!
Practical methods of confirming that cryptocurrency is in fact held by an SMSF may include:
- Setting up an SMSF specific email address to register the coin exchange account.
- NOT transacting Bitcoin or other crypto-assets between the SMSF account and a personal account in the name of the members or related parties.
- Linking the SMSF bank account to the coin exchange account.
- Completing a declaration of trust or other declaration accepted by the auditor of the SMSF confirming that the crypto-assets are held by the trustee on behalf of the fund and not used personally by the trustees.
- Ensuring all trading transaction reports and tax invoices are saved.
- Obtaining a balance report showing the holdings at 30 June each year.
Bitcoin and cryptocurrency investment strategy
Cryptocurrency is not cash and as it doesn’t have a physical form it is not classified as a collectable. Technically it is a right. Therefore it may not fall into any existing asset class in the investment strategy requiring the strategy to be updated to include cryptocurrency as a separate asset class.
How do you purchase Bitcoin or cryptocurrencies?
Cryptocurrencies must be purchased with cash of the SMSF from an unrelated party, cannot be used as an in-specie contribution and the SMSF cannot purchase it from its members as it is neither a listed security nor a commercial property.
The Bitcoin cryptocurrency is no doubt highly volatile based on historical pricing. The decision to invest in Bitcoin or similar needs to be considered carefully by SMSF Trustees before including in their investment plans for their SMSF.
More information : If you require more information about Bitcoin and cryptocurrency investment, contact our Financial Planners for advice.
Bitcoin and Crypocurrency Investment Advice
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