{"id":5073,"date":"2020-02-21T12:10:24","date_gmt":"2020-02-21T02:10:24","guid":{"rendered":"http:\/\/www.www.walshaccountants.com\/?p=5073"},"modified":"2020-02-21T12:25:39","modified_gmt":"2020-02-21T02:25:39","slug":"crypto-creditable-or-kryptonite","status":"publish","type":"post","link":"https:\/\/www.walshaccountants.com\/crypto-creditable-or-kryptonite\/","title":{"rendered":"Crypto \u2013 Creditable or Kryptonite?"},"content":{"rendered":"

Low interest rates, government instability, flat bank stocks and threatened changes to franking credits have led to SMSF\u2019s starting to look at chasing the higher returns of crypto-currency.<\/p>\n

So, is cryptocurrency a bubble waiting to burst or is it the future?<\/p>\n

Is Crypto a currency?<\/h2>\n

The ATO has released several papers on crypto-currency and has confirm that cryptocurrency is in fact not a currency. Cryptocurrencies such as Bitcoin (BTC) are not treated in the eyes of the ATO as money or foreign currency but as capital gain assets \u2013 therefore \u2013 going forward we will call them crypto-assets.<\/p>\n

So what is crypto-assets?<\/h2>\n

A Crypto-assetsis similar to traditional money in that they can be used to pay for goods and services. However, they don\u2019t exist in the same physical form as money in your pocket, they are decentralised digital currencies. Meaning they have no underlying asset nor any countries government to regulate or support the value.<\/p>\n

A Crypto-asset is a digital token created using an encrypted string of data blocks, a blockchain. The blockchain is a decentralised database that tracks ownership of each \u201ccurrency\u201d unit and holds a history of all transactions.<\/p>\n

A digital wallet holds the Crypto-assets. The wallet usually stores a private key, used for spending and a public key used for receiving.\u00a0 The wallet also records of all incoming and outgoing transactions.<\/p>\n

A digital wallet should have strong controls surrounding its use, and the accessibility. This is no different to other asset classes, and the SMSF should take the appropriate steps and engage reputable providers & professionals to ensure their wallet and their investment is secure.<\/p>\n

SMSF Compliance Requirements<\/h2>\n

The Superannuation Industry (Supervision) Act (SIS) does not prohibit a SMSF investing in crypto-assets \u2013 provided all the other investment prohibitions are complied with.<\/p>\n

Investment Strategy & Trust Deed<\/h4>\n

Before investing in crypto-assets, the SMSF needs to review and as required, update their fund\u2019s investment strategy to ensure the crypto-asset investment is permitted.<\/p>\n

The SMSF also need to ensure that the SMSF\u2019s deed allows investments in crypto-assets and update as required.<\/p>\n

Sole Purpose<\/h4>\n

All assets of a SMSF must be held solely for the purpose of providing retirement benefits to members. The members cannot obtain any financial benefit personally when making crypto-asset investment decisions and arrangements.<\/p>\n

Related Parties<\/h4>\n

SMSFs are prohibited from acquiring assets from related parties, with limited exceptions. Crypto-assets do not meet any of these exceptions and therefore cannot be acquired from a related party or in specie contributed.<\/p>\n

Ability to transfer<\/h4>\n

On the death of a member, their retirement assets are transferred to their beneficiaries. This usually involves dealing with traditional institutions and supplying wills and death certificates.<\/p>\n

However, with crypto-assets there is no institution only a wallet and a password. Therefore, the SMSF should document the precautions that have been put in place to securely pass on the wallet details to other trustees or beneficiaries in the event of death. As alternatively any investment will be lost as the wallet cannot be accessed.<\/p>\n

Audit Considerations<\/h2>\n

A SMSF\u2019s auditor when auditing crypto-assets from a financial statement perspective reviews 3 main areas, in addition to the above mentioned compliance items.<\/p>\n

Existence, Ownership and Valuation.<\/strong><\/p>\n

    \n
  1. They need to establish if the asset exists; and then if it does,<\/li>\n
  2. Who owns the asset; and finally,<\/li>\n
  3. What it is worth at the reporting date.<\/li>\n<\/ol>\n

    Existence<\/h4>\n

    The SMSF must ensure the wallet provider is able to provide the auditor with accurate records to show the SMSF\u2019s holding at 30 June each year.<\/p>\n

    Ownership<\/h4>\n

    The SMSF must ensure that the wallet is registered in the name of the SMSF and should not be linked to any personal accounts.<\/p>\n

    A wallet in the name of the member may be determined that the fund has not invested in crypto-assets, but in a loan to the member instead \u2013 breaching the SIS legislation.<\/p>\n

    Valuation<\/h4>\n

    The SMSFs must ensure the investments is value in Australian dollars at fair market value obtained from a reputable digital currency exchange or website that publishes its rates publicly . The auditor may request an additional note be inserted into the financial statements detailing the volatility of the asset\u2019s value.<\/p>\n

    Summary<\/h2>\n

    Cryptocurrencies carry additional risk, fewer safeguards, significantly fluctuating valuations and the risk that the investment could be lost, either hacked or providers collapsing with limited or no recourse.<\/p>\n

    However, the increasing growth and popularity of Crypto-assets shows they are not a blip on the standard investment landscape \u2013 and therefore the use of these assets by SMSF cannot be disregarded as a fad.<\/p>\n

    Crypto-assets when acquired and managed correctly may prove not<\/u> to be a SMSF\u2019s kryptonite but a suitable and profitable investment.<\/p>\n

    We strongly recommend all trustees undertake their own investigation, appropriate due diligence and truly understand crypto-currency and its potential pitfalls before investing.<\/p>\n

    Disclaimer<\/strong><\/p>\n

    In providing this guide Walsh Accountants and our Self-Managed Super Division<\/a> has not provided any financial nor legal advice. This guide is merely a tool for educated Trustees to help with their investment compliance by highlighting the legislative and audit requirements. Walsh Accountants is neither promoting nor discouraging crypto-assets.<\/em><\/p>\n

    The information contained in this guide is general in nature and does not take into account your personal circumstances, financial situation and needs. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your retirement objectives, financial situation and needs.<\/em><\/p>\n

    Walsh Accountants\u00a0is not a representative of any AFSL holder\u00a0nor related to any AFSL holder and is not licensed to provide any financial product advice. For an investment strategy\u00a0to be prepared on your behalf\u00a0that takes account of your\u00a0particular objectives, financial situation or needs, you should\u00a0seek\u00a0financial advice from a\u00a0financial adviser under an\u00a0Australian Financial Services license\u00a0(AFSL).<\/em><\/p>\n

    Whilst we endeavour to ensure that the information in this guide is correct, no warranty, express or implied, is given to its accuracy and we do not accept any liability for error or omission. Please contact us if you need a comprehensive and up-to-date compliance review of any proposed crypto-asset investment.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

    Low interest rates, government instability, flat bank stocks and threatened changes to franking credits have led to SMSF\u2019s starting to look at chasing the higher returns of crypto-currency. So, is cryptocurrency a bubble waiting to burst or is it the future? Is Crypto a currency? The ATO has released several papers on crypto-currency and has […]<\/p>\n","protected":false},"author":13,"featured_media":5075,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"sfsi_plus_gutenberg_text_before_share":"","sfsi_plus_gutenberg_show_text_before_share":"","sfsi_plus_gutenberg_icon_type":"","sfsi_plus_gutenberg_icon_alignemt":"","sfsi_plus_gutenburg_max_per_row":"","_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","_vp_format_video_url":"","_vp_image_focal_point":[],"footnotes":""},"categories":[14,61,62],"tags":[],"acf":[],"yoast_head":"\nCrypto \u2013 Creditable or Kryptonite? | Walsh Accountants<\/title>\n<meta name=\"description\" content=\"SMSF\u2019s have started to look at investing in crypto-currency for higher returns. 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