Cryptocurrency SMSF: ATO creates guidelines on crypto super

How to value it, what kind of wallet you need and more – the ATO clarifies cryptocurrency rules in SMSFs.

After fielding more unanswerable questions than they can answer, the ATO has published a new set of guidelines for cryptocurrency holdings in self managed super funds (SMSFs).

The nutshell version is that cryptocurrencies are just like any other SMSF capital gains asset and all the usual rules apply, plus a bit of clarification around accommodating the stranger elements that cryptocurrency introduces, such as hyper-volatility and electronic storage.

Note that all the information on this page is purely a cursory interpretation of these ATO guidelines alone. Other factors may affect or conflict with these guidelines, they're subject to change and none of it is necessarily applicable to anyone, anywhere. If you're thinking of getting into cryptocurrency in an SMSF, it's almost certainly best done with the help of an experienced financial adviser.

Housekeeping rules

"Cryptocurrencies, such as bitcoin, are CGT assets and SMSFs may acquire, dispose of or invest in these as they would in any other asset. When an SMSF engages in these transactions it must comply with the same regulatory requirements that apply to investments in other assets."

And like any other SMSF investment, buying cryptocurrency needs to be in keeping with the fund's stated strategy and allowed under the SMSF's deed. The ATO suggests reviewing the risk of buying cryptocurrency and updating the fund's investment strategy to accommodate this if necessary.

Overall, it functions like any other capital gains tax (CGT) asset when held.

The right wallet arrangement

Cryptocurrencies are held in cryptocurrency wallets, but these need to be maintained in line with SMSF requirements. This means ensuring that the SMSF has decisive ownership of the wallet, and that it's separate to any cryptocurrency wallet that's used by a trustee or member personally.

The ATO doesn't go into detail about how to actually carry this out, but at a glance it looks like one of the more suitable arrangements would be a hardware wallet that's dedicated entirely to SMSF crypto holdings. It's infinitely more secure for long-term storage than an online "hot" wallet, and the wallet seed (password) can be securely held for the long run in several separate secure locations, such as a bank safe deposit box, to avoid needing to remember the password.

Imagine locking away a cryptocurrency fortune only to realise at retirement age that you've forgotten the password.

The downside of that might be that the types of coins you can hold in a hardware wallet are limited. Depending on how someone plans to diversify their cryptocurrency holdings, they might end up with multiple wallets which might get complicated quickly.

Valuation

SMSF cryptocurrency holdings must be valued in line with ATO valuation guidelines. To value the holdings, one can use the fair market value obtained from "a reputable digital currency exchange" or "website that publishes its rates publicly."

For the purposes of calculating member balances at 30 June, "the ATO will accept the 30 June closing value published on the website of a cryptocurrency exchange that reports on historical cryptocurrency value."

Intriguingly, these guidelines might still leave some wiggle room for those who can be bothered. You'll typically find slightly different prices on various coin price sites for a number of reasons, and people might be able to skew the on-paper value of their holdings a bit higher or lower by picking a different site.

At payout time

There's a potential catch at payout time. When the fund owner satisfies a condition of release, the fund can either be paid out as an in specie (transfer of ownership of an asset without selling it) lump sum or a pension income stream.

But the former may be subject to tax, while the latter can only be paid out as cash and not crypto. There might not be a "perfect" way to withdraw SMSF crypto holdings without either liquidating or paying additional tax on them.

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VEN, XLM, BTC and XRB.

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