Current record low deposit rates and volatility in stock markets around the world has motivated many retirees to seek alternative asset classes to either protect their investments or get a higher return. In conjunction with these sentiments, there has been a noticeable increase in spruikers encouraging individuals to invest in crypto-assets through SMSFs, with many recommending switching from retail or industry super funds in order to do so.
While promoters of these investments often bill them as high return and low risk, that is far from the truth. ASIC has recently issued a warning to SMSF trustees on the nature of crypto-assets which it says are a high risk and speculative, in addition to being an attractive target for scammers. For example, late last year, ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs. The money obtained from investors was allegedly used by the directors of the business for personal benefit, including acquiring real property and luxury vehicles in their personal names.
Professional advice should be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose test”. Remember, trustees bear all the responsibility for the decisions of the SMSF complying with the law, and breach or non-compliance may lead to administrative or civil and criminal penalties. This is the case even if you as the trustee rely on the advice of other people, licensed or otherwise.
SMSFs are not generally prohibited from investing in crypto-assets, if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you are able to do so. Although, consideration must be given to the following factors:
- Fund’s governing rules: trustees need to ensure that any investments in crypto-assets are allowed under the SMSF’s deed
- Investment strategy: documentation of how the SMSF’s investments will meet retirement goals, taking into account diversification, liquidity, and ability of the fund to discharge its liabilities. Trustees need to consider the level of risk of the crypto-assets invested in, and review/update the fund’s investment strategy to ensure the investment being considered is permitted
- Ownership and separation of assets: crypto-assets must be held and managed separately from any personal or business investments of trustees and members. The SMSF must maintain and be able to provide evidence of a separate crypto-asset “wallet”.
- Valuation: SMSFs must obtain fair market valuations for their crypto-assets for the purposes of calculating member balances.
In addition, other considerations include restrictions on related-party transactions (ie if you currently own crypto-assets and want to transfer it to the SMSF for various purposes, you will be unable to do so), and potential CGT consequences when an in specie lump sum payment of crypto-assets occur upon a condition of release.
Speak to one of our accountants today if you have any questions or need assistance with SMSFs investing in crypto-assets.