SMSF Investment in Crypto-Assets

According to ASIC, there has been a surge of promoters encouraging individuals to set up SMSFs in order to invest in crypto-assets. ASIC warns that crypto-assets are high risk and speculative, as well as being an attractive target for scammers. While SMSFs are not prohibited from investing in crypto-assets, individuals thinking of setting up an SMSF are encouraged to go into the decision fully informed. Remember, trustees bear all the responsibility for the decisions of the SMSF complying with the law, and breaches may lead to administrative or civil and criminal penalties.

For example, late last year, ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs. The money obtained from investors was allegedly used by the directors of the business for personal benefit, including acquiring real property and luxury vehicles in their personal names.

Can SMSFs Invest in Crypto?

SMSFs are not generally prohibited from investing in crypto-assets, if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation.

Seeking Professional Advice

Professional advice should be sought from business advisors in Melbourne and other relevant professionals before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose test”. Remember, trustees bear all the responsibility for compliancy, and any breach or non-compliance could result in administrative or civil and criminal penalties. This is the case even if you as the trustee rely on the advice of other people, licensed or otherwise.

Consideration must also be given to the following factors:

• Fund’s governing rules – Trustees need to ensure that any investments in crypto-assets are allowed under the SMSF’s deed
• Investment strategy – Documentation of how the SMSF’s investments will meet retirement goals, taking into account diversification, liquidity, and ability of the fund to discharge its liabilities. Trustees need to consider the level of risk of the crypto-assets invested in, and review/update the fund’s investment strategy to ensure the investment being considered is permitted
• Ownership and separation of assets – Crypto-assets must be held and managed separately from any personal or business investments of trustees and members. The SMSF must maintain and be able to provide evidence of a separate crypto-asset “wallet”
• Valuation – SMSFs must obtain fair market valuations for their crypto-assets for the purposes of calculating member balances

In addition, other considerations include restrictions on related-party transactions (i.e. if you currently own crypto-assets and want to transfer it to the SMSF for various purposes, you will be unable to do so), and potential taxation consequences when an in-specie lump sum payment of crypto-assets occurs upon a condition of release.

Need Advice?

If you think you would like to set up an SMSF and/or invest in crypto-assets, Alexander Bright can explain in simple terms what your responsibility will be as a trustee of an SMSF. Our tax accountant can also help you navigate any pitfalls in relation to the administration and regulation of the fund, as well as providing helpful business accounting services in Melbourne. Contact us today for expert advice.