Compliance Issues to consider with investing in Cryptocurrency in SMSF’s

The purpose of this page is to provide an open and transparent knowledge share about our SMSF Auditor’s views of what compliance rules need to be considered when conducting an SMSF Audit which has cryptocurrency in the Fund. This page is designed for both SMSF Auditors, and also active SMSF Trustees.

Any ASIC Registered SMSF Auditor wanting to conduct an SMSF audit which involves crypto-currency investments in their SMSF must understand the auditing standards set out in the Superannuation Industry (Supervision) Act 1993 (Cth) (SISA) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (SISR) which need to be referred to when conducting the audit.

In my professional opinion, I believe the following sections of the SISA and SISR pose a risk to the compliance of an SMSF if not set up properly.

In summary, the following SISA and SISR sections are relevant to cryptocurrency auditing:
S62, s65, s66, s103, s109, Reg 4.09, Reg 4.09A, and Reg 8.02B

S62 of the SISA – The Fund must be maintained for the sole purpose of providing benefits to any or all of the following:

  • Fund members’ upon their retirement
  • Fund members’ upon reaching their preservation age
  • The dependents of a fund member in the case of the members’ death before retirement

Editor’s note: This means that, regardless of what you invest in, you must always have this in mind; your superannuation monies are intended for your retirement and for the long term purposes.

S65 of the SISA – The trustees must not loan monies or provide financial assistance to any member or relative at any time during the financial year.

Editor’s note: This means that, you cannot take money out of your SMSF to purchase bitcoin/ etherium or any cryptocurrency in your personal/ business name, regardless of whether the monies are repaid or not.

S66 of the SISA – The trustees must not acquire any assets (not listed as an exception) from any member or related party of the Fund.

Editor’s note: This means that, you cannot sell/ transfer your cryptocurrency investment from your personal/ business name into your SMSF. There are a large number of crypto providers where you can trade your crypto investment, one such provider allows for the purchase of investments in SMSFs is Independent Reserve.

S103 of the SISA – The trustees must keep minutes of all meetings and retain the minutes for a minimum of 10 years.

Editor’s note: A purchase of cryptocurrency is a major investment decision affecting the Fund. It is recommended that reasonable steps and documentation be maintained surrounding the purchasing/ disposal of crypto investments. It is the trustees’ responsibility to ensure the appropriate minutes are maintained with relation to the location/ storage of the crypto device (Nano S Device) etc., how much the Fund is willing to invest in.

S109 of the SISA – All investment transactions must be made and maintained at arm’s length – that is, purchase, sale price and income from an asset reflects a true market value/ rate of return

Editor’s note: All investments purchased must be reflected at market values. It is imperative that all transactions entered into (whether buys or sells) is entered into the accounting system. All transactions must be on-market transactions using any Crypto-Broker. A reminder, the purchase and sale of each investment must be maintained in the name of the SMSF.

Reg 4.09 of the SISR – Trustees must formulate, regularly review and give effect to an investment strategy for the Fund.

Editor’s note: A purchase of cryptocurrency investments, like all investments, is risky, with a potential to making a profit or loss. As such, SIS Reg 4.09 requires an SMSF to maintain an appropriate investment strategy. As the auditor, may I suggest, it is highly recommended the Fund prepares a supplementary investment strategy, with a specific clause included for the Fund to provide due consideration to the high-risk nature of the investment.

Reg 4.09A of the SISR – The assets of the SMSF must be held separately from any assets held by the trustee personally or by a standard employer-sponsor or an associate of the standard employer-sponser

Editor’s note: All investments must be held in the name of the SMSF, as a rule. The investments must also be held separately from the personal investments – ie. If the members’ personally hold cryptocurrency investments, the investments must be held in a separate Ledger Wallet unit. The Fund’s investments must be clearly identifiable and maintained at arm’s length.

Reg 8.02B of the SISR – When preparing accounts and statements required by subsection 35B(1) of SISA, an asset must be valued at its market value.

Editor’s note: The current AUD value of bitcoin, as of 2:30PM on 29th August 2018 is: $9,603.866 per 1 Bitcoin (BTC). (Data from Coinbase). Naturally, a valuation will need to be done at the year end, being 30 June 2018.

About the author:

The author is Dinesh Nanayakkara, an ASIC Registered SMSF Auditor providing SMSF Auditing Services to the wider community for the past 5 years and has been involved in the SMSF Industry for more than 10 years. Dinesh holds a Diploma of Financial Planning and is an SMSF Association SMSF Specialist Auditor.

Dinesh has his own SMSF and also has invested in crypto-currency through his SMSF and is actively involved in education programs to educate SMSF Accountants and fellow SMSF Auditors to

D.S Audit Services is an SMSF Audit-only firm and do not provide financial advice. All information provided has been prepared without taking into account of the Trustees’ objectives, financial situation or needs. Trustees are advised to consider their own circumstances before engaging our services.