Can SMSFs invest in Bitcoin?

4 Sep 2019 10:00
Nicholas Fletcher

Yes. SMSF investors have made a remarkable contribution to the groundswell in popularity of cryptocurrency in Australia, with the number of Aussies holding crypto almost tripling since January, 2018.

Independent Reserve has seen the astonishing growth in this sector first hand and provides services to more than 8,000 SMSF customers.

Do-it-yourself superannuation funds have evolved over the past few decades to become the largest fund category in the sector, accounting for more than a third of the total superannuation pool.

While the stereotype associated with SMSFs is that of wealthy Baby Boomers, statistics from the Australian Tax Office show that people under 40 are the fastest growing segment.

Around one in five SMSFs are run by those under 45.

People who earn less than $60,000 a year now account for more than half (55 per cent) of SMSFs.


Taxation and reporting

Independent Reserve has developed appropriate reporting and statement mechanisms, with the assistance of the Australian Tax Office, to integrate seamlessly with the tax and superannuation systems.

The ATO states that SMSFs must ensure their investments in cryptocurrency are valued in accordance with its valuation guidelines.

For the purpose of calculating member balances, the ATO accepts closing value published on cryptocurrency exchange websites that report on historical values.

Independent Reserve offers an integrated tax tool co-developed with KPMG that enables investors to get estimates on tax obligations at a click of a button.

This is the first bespoke API backed by a global professional services firm that plugs directly into a crypto exchange.


How to invest in Bitcoin with a SMSF on Independent Reserve

You can set up an SMSF using an accountant of your choice – we recommend using an accountant that understands cryptocurrencies.

Note: for any investment in Bitcoin or other cryptocurrencies to be allowed, it must be specifically enabled and included in the SMSF trust deed.

On top of this, any trustees to the fund must update their strategy document to include cryptocurrencies.

Once your SMSF is set up you will get an SMSF bank account and your existing superannuation funds can be transferred into this account.

Next you will need to create a Super Fund account with Independent Reserve.

This requires providing some personal verification documents as well as uploading your SMSF trust deed and various other details pertaining to the fund entity.

Once verified, you may transfer money to your Independent Reserve account and buy Bitcoin or other cryptocurrencies.

SMSFs require an annual audit to remain compliant - Independent Reserve provides an order history report that you can generate for this purpose.


Other things to consider with SMSFs

There are many rules and regulations governing requirements around SMSFs.

Some of these include:

  • The investment strategy
    Your SMSF investment strategy must consider diversification, liquidity (how easily you can convert Bitcoin to cash), ability to pay (when the funds are realised), insurance, etc.
  • The sole purpose test
    All SMSFs in Australia must pass the sole purpose test, which requires the SMSF funds to only be generating income that benefits the SMSF fund itself directly. No one (including trustees) can obtain a direct financial benefit when making investment decisions with fund money.
  • Cryptocurrency specific concepts
    It is important to understand certain concepts when it comes to Bitcoin and cryptocurrencies. They are an intangible asset created through mathematical constructs that people give value to for no other reason than they believe others will also.
    While intangible, ownership can still be attributed. The cryptocurrency exchange used needs to be able to directly support SMSFs and allow you to enter various details such as the fund name and trustee information.
    Independent Reserve was the first Australian exchange to do this, and is the most experienced in terms of compliance requirements surrounding SMSFs.
  • How do I store my cryptocurrency?
    One of the benefits of cryptocurrency is the ability to easily send funds anywhere in the world.
    People often withdraw cryptocurrency from exchanges to a personal cold wallet for safekeeping.
    Independent Reserve provides this functionality, but you should be aware that it can add further complications to SMSF audit processes as the location of all your funds needs to be accounted for.
    Independent Reserve recommends that if you decide to transfer your cryptocurrency from our platform, you minimise the number of wallets you send it to, and keep detailed records of where it is.