Can an SMSF buy Bitcoin?
Yes, a Self-Managed Superannuation Fund (SMSF) can purchase Bitcoin and other cryptocurrencies. Bitcoin must be enabled and included in the trust deed and included in the documented investment strategy.
Keep in mind, an SMSF investment is subject to the regulations under the Superannuation Industry (Supervision) Act 1993 (Cth) (‘SISA’) and the Superannuation Industry (Supervision) Regulations 1994 (Cth) (‘SISR’).
Where can SMSFs buy Bitcoin?
A Self-Managed Super Fund can buy Bitcoin from a cryptocurrency exchange, OTC (Over the Counter) or Bitcoin broker services. SMSF trustees should go through due diligence process to ensure they’re buying from a credible source.
As part of the due diligence process ensure:
- The exchange is based in Australia and has a physical presence
- The exchange provides local support via phone and email
- Ensure the exchanged is well established
- Ensure the exchange complies with Anti-Money Laundering (AML) laws and Know-Your-Customer (KYC) protocols
- Facilitates reporting of the history of your transactions
- Has fair and reasonable fees
- Members of an industry body such as Blockchain Australia
Top Australian Bitcoin Exchanges for SMSFs
- Independent Reserve
Established 2013, they offer a crypto exchange, an OTC desk with local support and an option to insure crypto. They comply with AUSTRAC’s AML laws and have strong KYC protocols. They’re a Gold Member of Blockchain Australia and have won Digital Currency Exchange of the Year 2019.
Established 2013 in Melbourne, their crypto exchange offers over 100 digital currencies, they provide an OTC desk with local support. Cointree comply with AUSTRAC’s AML laws and have strong KYC protocols. They’re a Member of Blockchain Australia.
Established 2013 in Melbourne, their crypto exchange offers over 100 digital currencies, they provide an OTC service with local support. Coinspot comply with AUSTRAC’s AML laws and have strong KYC protocols. They’re a Member of Australian Digital Commerce Alliance.
About investing in Bitcoin through your SMSF
Pros and cons of investing crypto through your SMSF
View the short video for an overview of the pros and cons in using an SMSF to invest in crypto.
Your SMSF’s investment strategy
Under the SISA and SISR rules, the trustee of an SMSF is required to regularly review, plan and implement an investment strategy that considers the circumstances of the SMSF fund. For example, circumstance may change depending on the age of the trustees. More over, the SMSF trustee should consider:
- The risks associated with acquiring, holding and making investments with respect to the fund’s goals
- The composition of the whole fund which includes the extent of the diversity of the investment or includes all the potential risks that the fund can face from being inadequately diversified
- The liquidity that the investments of the fund possess which should be considered while keeping the cash flow requirements in mind
- The ability that the fund possesses to dispose of any existing and future liabilities that may arise
- Whether or not the fund’s trustees and its member should be covered by insurance
The regulations do not spell out the level of risk that’s considered acceptable for an SMSF. This is because the risk the SMSF’s trustees and its members are ready to tolerate, depends on them.
Allow for the SMSF to invest in Bitcoin and consider volatility
For every SMSF trust, its investment strategy must make allowances for investments in Bitcoin. Whether or not this investment strategy is appropriate for a particular SMSF will depend on the fund’s circumstances.
Bitcoin is volatile and only offers capital growth opportunities, thus there’s a high risk associated with investing in Bitcoin. Therefore, the SMSF trustee may decide to invest only a small proportion of the fund’s portfolio in Bitcoin or cryptocurrency.
Rules governing the fund
Beyond the regulations in the SISA and the SISR, an SMSF trustee is limited by the governing rules of the fund. An SMSF trustee should ensure that the governing rules expressly allow them to invest in Bitcoin. As older SMSF deeds are unlikely to have this, the fund’s governing rules may need to be updated.
The requirement that trust assets must be identified
A potential issues with SMSFs investing in Bitcoin is the requirement to show they actually hold the Bitcoin in the fund. Ways this can be done includes:
- Usage of the fund’s bank account for purchasing
- Passing the required trustee resolutions
- Creating an email address specific to the fund
- Making sure that all exchange accounts are in the SMSF trust’s name
How is Bitcoin taxed?
The Australian Taxation Office (ATO) has issued many tax determinations on how Bitcoin is to be treated. Generally speaking, the Tax Office’s position is that Bitcoin is a Captial Gains Tax (CGT) asset for taxation purposes. It is also useful to seek qualified tax advice.