Self-Managed Super Funds (SMSFs) are a popular choice for Australians looking to take control of their retirement savings. However, as the world of finance evolves, so too do the investment options available to SMSF trustees. One such option that has gained traction in recent years is the inclusion of cryptocurrencies, such as Bitcoin and Ethereum, within an SMSF’s investment portfolio.

While the idea of investing in cryptocurrencies may seem daunting to some, it is important to remember that SMSF trustees have the same obligations and responsibilities as any other trustee. This includes the requirement to have their SMSF audited annually.

When it comes to auditing an SMSF that holds cryptocurrencies, there are a few key considerations for trustees and their auditors to keep in mind.

The first and most important consideration is the issue of valuations. Cryptocurrencies are not traded on regulated exchanges and their value can fluctuate greatly. This means that the value of a cryptocurrency holding may be vastly different at the time of the audit compared to the time of purchase. It is important for trustees to provide auditors with accurate and up-to-date valuations for their cryptocurrency holdings. This can be done by using reputable cryptocurrency exchanges or independent valuers.

Another consideration is the issue of custody. The safekeeping of an SMSF’s assets is the responsibility of the trustee. This includes ensuring that the private keys to any cryptocurrency holdings are securely stored. Trustees should provide auditors with evidence of how the private keys are being stored, such as using a hardware wallet or multi-sig setup.

Trustees also need to be aware of the tax implications of holding cryptocurrencies within an SMSF. The Australian Taxation Office (ATO) has issued guidance on the tax treatment of cryptocurrencies held within an SMSF. For example, if a cryptocurrency is held as a revenue asset, it will be subject to income tax, whereas if it is held as a capital asset, it will be subject to capital gains tax. Trustees should provide auditors with documentation outlining the tax treatment of their cryptocurrency holdings.

It is also important for trustees to ensure that their SMSF’s investment strategy is compliant with the fund’s trust deed and the Superannuation Industry (Supervision) Act 1993. The investment strategy should outline how the SMSF’s assets will be invested, including any limits on the percentage of assets that can be invested in any one asset class. Trustees should provide auditors with a copy of the investment strategy and evidence that the investments made are in line with the strategy.

In addition, trustees should also ensure that their SMSF’s investments are diversified, to ensure that the fund is not overly exposed to any one particular asset class. This is particularly important when it comes to cryptocurrencies, as their value can be highly volatile.

Finally, trustees should be aware that the Australian Securities and Investments Commission (ASIC) has issued guidance on the use of leverage when investing in cryptocurrencies within an SMSF. Leverage, such as margin trading, can increase returns but also increases the risk of loss. Trustees should ensure that any use of leverage is compliant with the fund’s trust deed and the Superannuation Industry (Supervision) Act 1993.

In conclusion, while the inclusion of cryptocurrencies within an SMSF’s investment portfolio may seem daunting, it is important for trustees to remember that they have the same obligations and responsibilities as any other trustee. This includes the requirement to have their SMSF audited annually. By keeping the considerations outlined above in mind, trustees can ensure that their SMSF’s cryptocurrency holdings are properly valued, safely stored and compliant with all relevant laws and regulations.

It’s important to note that as the cryptocurrency market is highly dynamic and new regulations.

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Disclaimer: SMSF Audit Australia Pty Ltd is not licensed to provide advice on investments, or legalities of the types of investments that you can have. We recommend that you seek professional advice from an AFSL holder before making any investment choice or decision including establishment of a SMSF. The articles on this website is for educational purposes only.