Dacxi Crypto Wealth | How can my SMSF invest in cryptocurrencies?

How can my SMSF invest in cryptocurrencies?

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Dacxi

Jan 17, 2022

10 MIN

Q: I’m interested in investing in cryptocurrency using my SMSF. Is the fund required to specifically state in its trust deed that this is allowed? 

SMSF regulator the Australian Taxation Office has provided guidance for funds wishing to invest in cryptocurrencies, which states that trustees and members should ensure that investments in cryptocurrencies are allowed under the fund’s trust deed. The investment must also be in accordance with the fund’s investment strategy and comply with SISA and SISR regulatory requirements concerning investment restrictions.

What this suggests, is that including some mention of cryptocurrencies in the trust deed is recommended. There are also instances of deeds that make specific references to investing in cryptocurrency. 

A key aspect of crypto investing is understanding the importance of  accurate records of transactions and holdings, and the ATO notes that when an SMSF engages in crypto transactions, it must comply with the same regulatory requirements that apply to investments in other assets.

SMSF auditors also provide guidelines on how crypto investing should be approached. Auditors want to see specific references to cryptocurrency in not only trust deeds but also in the investment strategy. This is because crypto investments are more complicated to audit than traditional SMSF assets.

 

Q: What are the best ways to buy and own bitcoin or cryptocurrencies for an SMSF? 

When looking to include crypto assets in a SMSF it’s important to recognise that they are an asset class that can add diversity to a portfolio. They are an asset class where investment returns come from making capital profits from buying and selling coins and tokens, and as a result behave differently to traditional investments like shares and property.

Given there are more than 15,000 crypto investments in the sector, the fund’s investment strategy should show clearly why an SMSF has chosen particular coins or tokens. 

How the SMSF proposes to deal with risks associated with crypto investing should also be covered in the strategy. 

Crypto is traded using “electronic wallets” with unique complex numbers. It is also important to be aware how coins and tokens are taxed when they are sold. Put simply, any profits are treated as an asset on which capital gains must be paid..

With Dacxi, your SMSF can invest in blue chip cryptocurrencies including Bitcoin, Ethereum, Litecoin and many more. Dacxi also offers the world’s three leading precious metals (Gold, Silver & Platinum) in tokenised form.

 

Selecting a Coin Exchange for SMSF Cryptocurrency

 

Points to consider:

Ensure the cryptocurrency exchange is based in Australia with Australian based staff.

Ensure the cryptocurrency exchange complies with Anti-Money Laundering (AML) laws and conducts detailed Know-Your-Client (KYC) verification procedures.

The cryptocurrency exchange is registered with AUSTRAC as a Digital Currency Exchange Provider.

The cryptocurrency exchange provides insurance on the digital assets held in custody.

The business has online and phone customer support.

 

*Set up your SMSF on Dacxi to start investing in cryptocurrencies 

 

Q: Can you make an in-specie transfer of a personally owned crypto holding into an SMSF? 

Bringing assets into an SMSF fund as a contribution implies a strategy called “in specie”, meaning “in the actual form”.

Members of an SMSF are not permitted to transfer personally-owned crypto investments as a contribution or a sale to the fund. Nor will your fund be able to buy it from you. This also applies to other related parties including a trustee, relative of a member or trustee, or any company or unit trust that they control.

Section 66 of the Superannuation Industry (Supervision) Act prevents a super fund from acquiring assets from related parties.

An SMSF can acquire cryptocurrency from unrelated third parties like an exchange (Dacxi), individual, a broker or a crypto miner, provided the acquisition is on an arm’s length basis where  buyers and sellers are independent of each other.

There are some exceptions to this rule which include listed shares, commercial property and in-house assets – but cryptocurrency does not fall within these exceptions.

 

Q: Can an SMSF be involved in Bitcoin mining? 

Bitcoin or cryptocurrency mining is the activity of creating new crypto coins or tokens with sophisticated computers, and is different from investing in crypto.

The income generated by the mining activity would be assessable income to the SMSF, and  GST is required to be remitted to the ATO depending on income level. The details of how this arrangement is structured and the terms and conditions of the contract are particularly important.

As long as the company that hires or “licenses” the fund’s computers is not related to the SMSF, and the computers are used solely for the mining activity, the activity is technically  possible. It is worth noting that expenses (electricity and depreciation of computer hardware) would be deductible, however accurately tracking and paying for these expenses with the SMSF is a complex undertaking.