The rise of cryptocurrencies has been a game-changer for investors, including those managing Self-Managed Super Funds (SMSFs). While digital assets offer new and exciting opportunities, they also bring a unique set of compliance challenges that trustees need to work through. Here’s what you need to know to stay on the right side of the rules and ensure a smooth audit process.
Why Crypto in SMSFs is Tricky
Cryptocurrencies have grown in popularity within SMSFs due to their potential for high returns and diversification. However, they also come with complexities, especially when trustees opt for self-custody to avoid counterparty risk.
It’s important to note that your favourite cryptocurrency tax calculator isn’t sufficient for SMSF compliance. While these tools might be helpful for personal tax purposes, SMSFs require evidence that satisfies the auditor’s need to verify ownership, completeness, existence, and valuation of the assets. Trustees must go beyond basic summaries to provide detailed records.
Key Compliance Considerations
1. Check Your Deed and Investment Strategy First
Before diving into crypto, ensure your SMSF trust deed and investment strategy allow for cryptocurrency investments, the same with any other investment.
2. Auditor Scrutiny: Ownership, Completeness, Existence & Valuation
Your SMSF auditor will look to cover four key assertions:
- Ownership: Confirming that the SMSF beneficially owns the crypto assets.
- Completeness: Ensuring all holdings and transactions are recorded.
- Existence: Proving that the assets exist at the reporting date.
- Valuation: Verifying the value of the holdings.
Documentation Requirements for a Smooth Audit
To streamline the audit process and avoid compliance issues, trustees need to provide sufficient appropriate audit evidence:
- Exchange Records
- Assuming you will be using exchanges, provide reliable records of buys, sells, transfers, and cash movements. If necessary, the use of screenshots should include URL details to confirm their source. CSV files won’t be enough.
- Ensure documents include account name and number for verification.
- Self-Custody Holdings
- Provide the blockchain address details to prove the existence of holdings. Do this as close to 30 June as possible, as blockchain explorers may not allow for retrospective reporting.
- Confirm control of the holding by supplying hardware wallet records that match the blockchain.
- Separation of Assets
- The ATO mandates separate wallets for SMSF holdings to avoid mixing fund and personal assets. Failure to comply with this in a breach of Regulation 4.09A of SISR.
Tips for Compliance Success
- Plan Ahead: Keep detailed and accurate records throughout the year. Scrambling for documents during audit season is a recipe for stress.
- Engage Early: Provide all required documentation to your auditor at the start of the audit process. Being proactive usually avoids unnecessary delays and compliance headaches.
- Stay Updated: Cryptocurrency compliance is a rapidly evolving space. Stay informed about the latest ATO guidance and best practices for SMSF trustees.
Cryptocurrency investments can add significant value to your SMSF, but they require careful planning and documentation to ensure compliance. By understanding the risks and keeping the appropriate evidence, you can enjoy the benefits of digital assets while keeping your SMSF compliant.
