Cryptocurrency, also known as crypto or crypto assets, is any form of currency that only exists digitally.

While these currencies have the same characteristics as traditional currency, a cryptocurrency does not have a physical form (you cannot hold it in your hand) and it does not rely on a bank to verify any transactions, which is what happens with online payments such as bank transfers and EFTPOS payments.

Instead, cryptocurrency uses a decentralised system that lets anyone in the world send and receive payments online, regardless of their physical location. All transactions are recorded on a publicly distributed ledger that cannot be changed, protecting the records from being accessed by hackers.

At present, the cryptocurrency industry is largely unregulated.

While this was the intention when the industry was established, the Australian government has recently confirmed they intend to implement some regulation of the cryptocurrency market, which we expect to see soon.

There are currently thousands of different types of cryptocurrencies, with some of the more popular ones being Bitcoin (BTC), Ethereum (ETH) and Binance Coin (BNB).

How do you purchase cryptocurrency?

To trade in cryptocurrency, you will need an account, or ‘wallet’. These cryptocurrency ‘wallets’ are virtual and can only be identified via an IP address, which can cause issues when registering the asset in the name of an SMSF.

The superannuation rules state that all assets of the SMSF must be held and managed separately from the personal assets of the trustees and members, and this includes any crypto assets.

To do this, you must establish a separate wallet for the SMSF and maintain detailed and precise records of any trading activity.

How is cryptocurrency taxed in an SMSF?

The ATO considers cryptocurrency a capital asset of an SMSF, rather than ‘money’.

If you sell your crypto and make a profit, this profit will attract capital gains tax for the SMSF. Any losses made selling cryptocurrency will trigger a capital loss, which can offset any capital gains within the SMSF.

How is cryptocurrency valued in an SMSF?

While there is no official market for crypto, all cryptocurrencies have a current market valuation, which helps to ensure these assets are correctly valued in the SMSF.

Trustees must be aware that SMSFs must follow the ATO valuation guidelines for their investments, including any crypto assets.

The value in Australian dollars will be the fair market value obtained from a reputable digital currency exchange or website that publishes its rates publicly.

Beware of Scams

With all investment decisions, it is imperative to understand whom you trust with your hard-earned money, and cryptocurrency investments are no different.

As the industry is largely unregulated, it is even more vital that you do your homework and make smart investment decisions.

Ensure that you only take investment advice from someone you trust and ensure you are investing with a reputable company.

ASIC reports an increase in cryptocurrency scams and instances of ‘questionable’ advice being given via various social media platforms, so take steps to educate and protect yourself and your retirement savings when considering cryptocurrency as an investment in your SMSF.

Follow this link for a checklist of how to avoid investment scams targeting SMSFs, and things to consider before investing.

Investing in Cryptocurrency and SMSFs

Before an SMSF can acquire cryptocurrency, several steps must be taken to ensure the SMSF is compliant with the legislation.

BDO’s Superannuation team has compiled a checklist to assist you with this process, which you can find here.

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