Bitcoin is becoming more popular in an SMSF environment as crypto investments are becoming more mainstream. When investing in Bitcoin, Trustees should make sure their SMSFs are compliant with guidance as we explain below.
If an SMSF invests in cryptocurrencies, Trustees need to ensure that the Fund’s assets are held separately from personal assets and the SMSF must have a clear ownership of the cryptocurrency. This means that statements must be in the name of the SMSF. For an example of the cryptocurrency holding statement, please see here:
Sole Purpose Test
SMSFs are required to operate for the sole purpose of the Fund. This means that each investment made or action undertaken by the SMSF should be for the sole purpose of providing retirement benefits or death benefits to the Beneficiaries of the SMSF.
This requirement might be addressed by ensuring the SMSF’s Bitcoin are held at a public IP address and stored in a secure manner. Regular movements between different public addresses could cause difficulties to identify the ownership of the investment. Movements between the SMSF’s public IP addresses and a Member’s address might be regarded as a related party transaction and breach the sole purpose test.
Related Party Transactions
Bitcoin cannot be used as an in-specie contribution. In addition, an SMSF cannot purchase Bitcoin from its Members or related parties as it is neither a listed security nor a commercial property. Virtual currency must be purchased with cash from the SMSF bank account to illustrate the SMSF is the owner of the Bitcoin or other virtual currency.
Members of an SMSF can take lump sum payments by way of virtual currency transfer if they meet a condition of release. Please note pension payments can only be taken as cash payments. Virtual currency cannot be used for this purpose. For more information on virtual currencies, follow this link.
Bitcoin Providers
When opening up a Bitcoin account for your SMSF, consider using Hardblock as a provider.
Tax Treatment
Bitcoin as an investment in an SMSF is taxed as a CGT asset. For more details on tax treatment of virtual currency in SMSFs, please see our page discussing Taxation of Bitcoin.
