SMSF And Cryptocurrency: 4 Things to Consider

14 April 2021
It seems as though cryptocurrency has officially moved into the mainstream and progressively some Australians are moving a percentage of their Superannuation wealth into this emerging asset class.

SMSFs are adding crypto to their portfolios

Self Managed Super Funds (SMSF) were introduced in October 1999. Since inception, they have proven popular with those that wish to diversify their portfolio in line with their own investment ideals.

Australian’s now have the ability to invest in cryptocurrency through their SMSF, but there are some considerations to be taken on-board. Here are our top four things you need to be across before you begin.

Understanding Bitcoin and cryptocurrency

Firstly, it is recommended you understand the basics around what bitcoin is and the technology behind cryptocurrency. In Australia, bitcoin is considered a digital currency, which can be used for online payments, or as a store of wealth (like gold). There is no central authority overseeing bitcoin, it is built on a peer-to-peer system, with all the transactions and balances being stored on an online ledger known as the blockchain.

It is unique due to its ability to disrupt traditional financial markets and provide an alternative investment vehicle to hedge against traditional assets and the fiat system.

When you purchase bitcoin (or any other cryptocurrency) you take custody of the asset which you store in your own wallet. The wallet gives you exclusive access to your bitcoin and once in your possession, it cannot be sent without direct access and permission via the password to your wallet.

SMSF considerations

As the industry has grown into the consciousness of the Australian public and business, a number of Australian’s invested in cryptocurrency through their Self Managed Super Fund.

If you wish to join the crowd, there are some rules around cryptocurrency investment in relation to your SMSF and the ATO has provided guidance around this:

  • Your fund’s trust deed must allow for the purchase
  • The purchase must be in accordance with your fund’s investment strategy
  • You must comply with SISA and SISR regulatory requirements

Furthermore, SMSF holders must ensure that the SMSF is maintained purely for the purposes of funding retirement, so no benefits can be derived outside of that as part of the trading strategy. To ensure your investment is aligned with your fund’s strategy, it is reasonably expected you would aim to diversify your investment, rather than invest everything you have into cryptocurrency.
If you decide to setup your SMSF for cryptocurrency purchases, it is also good to understand what an auditor may look for. An auditor would be seeking to ensure that your cryptocurrency is valued annually (this can usually be done using a reputable exchange price at the end of the financial year) and a confirmation that your wallet address is solely used for SMSF purchases and not personal purchasing (keeping assets separate).

How do I set up an SMSF cryptocurrency account?

Setting up a cryptocurrency SMSF account is a relatively straightforward process. In general, a regulated exchange will generally require the following:

  • Copy of Trust Deed with proof of Trustees
  • Proof Trust ABN/CAN
  • ID for all beneficial owners
  • Trust bank details

Your details will be verified against official government sources to ensure compliance and once cleared your account will be ready to trade.

Security of your cryptocurrency

Security of your cryptocurrency is paramount, especially if you are investing larger amounts, which is usually the case with your SMSF. The three things you should focus on is:

  • Password integrity and security – ensure your passwords/passphrases are at least 12 characters and they are not stored online or exposed to anyone. It is best practice to add passwords and pin codes to any computer or mobile phone you access your crypto wallet from.
  • When you first create a wallet, ensure you store the backup password phrase (usually 12 or 24 words) offline and away from exposure. These words are used to restore your crypto wallet if your device is lost, stolen, or destroyed.
  • Follow general online best practice. Do not allow others to access your computer remotely, don’t click on email links unless you are sure they are secure and keep your browser and operating system updated.

Australia has adopted the digital currency revolution through legislating and regulating Digital Currency Exchanges, at present market capitalization is growing worldwide, and the market in Australia seems to be very progressive. So, while you never know what could happen in the future with any financial product, cryptocurrency is another option you can currently take advantage of to add diversity to your SMSF investments.

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This content was reviewed by Content Producer Marissa Hayden as part of our fact-checking process.

Andrew is the Managing Director at Easy Crypto Australia and has become an expert in cryptocurrency markets and technology. Andrew has a passion for driving Bitcoin adoption throughout Australia and the world.

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