As the rise of cryptocurrency continues, many trustees are wondering if their SMSF can invest in this popular asset class.
Yes is the answer, however attention to detail is required.
This asset class can be volatile, so the trustee should consider the sole purpose test and whether this investment meets their retirement needs. The sole purpose tests governs whether an investment or an action within an SMSF provides retirement benefits for its members.
If cryptocurrency is to be considered an appropriate investment, then it should be considered as a long term investment. Any day trading type activities may breach this test.
Once the trustee determines this is an asset class it wants to invest in, like any other investment, a review of the SMSF deed would be required to confirm it is an allowable investment. An update to the SMSF trust deed may be required.
A review of the investment strategy should be undertaken and potentially updated to facilitate the cryptocurrency investments.
Once the deed and investment strategy has been updated, the next step is to ensure that a coin wallet has been established in the correct trustee name.
The wallet should clearly identify itself as an SMSF asset, registered in the correct trustee name.
Annual yearend valuations are required and the trustees need to ensure the valuations are obtained by a reputable digital currency exchange.
Cryptocurrency is a capital gains tax (CGT) asset and as such if held for longer than 12 months, it is entitled to access the superannuation CGT discount of 33% if the investment is sold.
Cryptocurrency held personally by a member is not an asset that can be transferred nor acquired by their SMSF. This is because only certain assets such as listed securities and commercial property can be acquired by an SMSF from a member or related party.
If the SMSF wants to invest in cryptocurrency it needs to be purchased on the open market at an arm’s length and at market value.
For further assistance please contact Daniel Shaw at DKF Benjamin King Money on 9098 4299 or via email email@example.com and he will assist with your enquiries.
Please note: The information provided does not constitute financial product advice. The information is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. We recommend that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances.