↩️ This article is designed for Australian accounting professionals, and is part of our mega-guide on SMSF crypto compliance.
What to do if SMSF has crypto
Here are some key things for you to consider when onboarding new SMSF clients with crypto, to ensure you know how to handle crypto SMSFs in your public practice:
1. Trust Deed
A SMSF trust deed is a legal document that outlines the rules and regulations for the operation of the fund. It's important the trust deed appropriately reflects the unique characteristics of this asset class.
- You must check that the SMSF trust deed permits investments in crypto. If the SMSF already has a trust deed from before, this may require updating the deed to include a specific reference to crypto as a permitted investment. If updating the trust deed, be mindful of the new rules that apply from 1 July 2021 where the amendment of a trust deed could mean you have to prepare General Purpose Financial Statements (GPFS) for the superfund. See the Compliance section below for further details.
- You must check the trust deed also outlines the powers of the SMSF trustees in relation to crypto investments. This includes the power to purchase, sell, and hold crypto on behalf of the fund.
- You must check the trust deed specifies the methodology for valuing the SMSF's crypto holdings. This may involve using a reputable exchange, taking an average of multiple exchange rates, or using a valuation service.
- The trust deed must outline the process for amending the document to reflect changes in investment strategy or regulatory requirements. This ensures that the SMSF remains compliant and up-to-date with any changes in legislation or market conditions.
- In practice, most off-the-shelf trust deeds for SMSFs are flexible enough that they will already allow for crypto investments 👍
2. Investment Strategy
It's important for SMSFs to have a clear and well-considered investment strategy in place especially when it comes to investing in crypto.
- Make sure you review the SMSF investment strategy to ensure it allows for crypto allocation in the fund assets.
- Crypto is a highly volatile asset class, with prices subject to significant fluctuations. You must ensure the investment strategy considers the risks associated with crypto and that the fund's investments are aligned with its risk tolerance and investment objectives.
- Consider the risk profile of each fund member. It is important to clearly justify why crypto is a suitable investment for each member of the SMSF fund and how it addresses their investing preferences and risk profiles.
- Consider liquidity of the crypto assets, how will the outgoings of the SMSF be met.
- Consider succession planning, in the event that a Trustee/ Director is deceased, incapacitated, or leaves the fund. In particular, consider how passwords and wallet access will be transferred.
- The investment strategy must also satisfy the sole purpose test.
- Most standard SMSF investment strategies we see in practice, would not really hold up under close scrutiny, so this can definitely an area to look into.
3. Crypto platforms
Scope out the crypto exchanges/ services that the SMSF trustee has been using for the SMSFS crypto investments, to confirm you’ll be able to handle the crypto SMSF compliance.
- Ensure the accounts are actually registered correctly as the Trustee for the SMSF, and not for the individual. Most Australian exchanges do support account types specifically for SMSFs.
- Check that the exchange is an Australian-based exchange that is registered with AUSTRAC. Australian exchanges tend to have better reporting standards, particularly for SMSFs.
- It is essential the crypto exchange can provide accurate and timely reports on the fund's crypto holdings for tax reporting purposes.
- Check with the SMSF trustee that the platform enables access to a complete history of transactions, balances and values of the portfolio at the end of the year, and that statements can be available as pdf or multiple CSV export format.
- If the SMSF trustee has been utilising crypto services that your not familiar with, you’ll need to spend a bit more time scoping exactly what will be involved before committing to a scope of work.
4. On-chain activity
It’s important to scope whether there is any other on-chain activity, to ensure you’ll know how to handle the crypto SMSF.
- Check whether the SMSF trustee has used a hardware wallet for storing crypto. You’ll need to request the public addresses where the crypto is stored so you can account for the transactions and so the auditor can confirm balances and market values.
- Check with the SMSF trustee whether there have been any DeFi transactions, such as swaps, liquidity pools and staking pools. Activity like this can be more challenging to reconcile, and just means there will be a bit more work in review.
- Check with the SMSF trustee whether there have been any NFT purchases. As each NFT is unique, you’ll need to consider carefully how you’ll determine market valuations on 30 June.
If everything is good, you can onboard a new crypto SMSF that you’re confident in handling.
Select crypto tax software built for SMSFs
As you know, the compliance requirements for SMSFs aren’t easy, that’s why it’s important to choose crypto tax software that has been designed specifically for Australian SMSFs, and not one that was built for individual taxpayers in a foreign country.
Syla is an Australian-only crypto tax software package, that has been designed specifically to handle crypto investments for SMSFs. That means all the quirks of crypto have been accounted for, to make life easier for Accountants 🙏
Syla has partnered with BGL to turn your past crypto accounting trauma, into transaction sync pleasure 😊
This article is part of our mega-guide on solving compliance for crypto SMSFs, the next article in the series is -> Automate crypto transactions from Syla into BGL