I am being inundated by queries from young men aged 20-40 looking to learn more about Bitcoin and then a cohort of traditional SMSF trustees aged 40-70 who have an interest in alternative investments and especially Gold who now want to at least know more about Bitcoin and cryptocurrencies in general. so when I came across this latest paper dealing with both subjects from my good mate Jordan Eliseo, Chief Economist at ABC Bullion I twisted his arm to let me share it to my readers.

The key finding of his paper are:

KEY FINDINGS

• Blockchain technology has serious real world applications – it is here to stay
• Given valuations in broader financial markets, it can make sense to speculate in the cryptocurrency market with a small portion of one’s wealth
• Cryptocurrencies like Bitcoin are money today, but whether that status will endure remains to be seen
• Physical gold remains the simplest and most effective hedge against the monetary, market, and macroeconomic risks that investors confront today

I recommend that you read Jordan’s full report here:

BITCOIN, DOLLARS, GOLD: What Is the Future of Money?

Now, if you are determined to go ahead and invest in Bitcoin or other cryptocurrencies then you need to do some serious groundwork.

NOTE: I DO NOT RECOMMEND CRYPTO CURRENCIES AS A SUITABLE  INVESTMENT FOR AN SMSF, I AM JUST MAKING SURE THAT THOSE WHO DO INVEST DO IT COMPLIANTLY

How the SMSF regulations affect investing in Bitcoin, Ethereum or other cryptocurrencies

SMSF Professionals and Trustees should be well aware of the restrictions placed on the investment choices of SMSFs by the Superannuation Industry (Supervision) Act 1993 and supporting regulations.  The Australian Taxation Office (ATO) is in charge of the administration of these rules and they have issued this guidance on their website:

Tax treatment of crypto-currencies in Australia – specifically bitcoin

Although there are not yet any formal rulings from the ATO clarifying how the rules apply to Bitcoin, there are a number of Tax Determinations that help guide any SMSF Trustees considering investing in bitcoins.

• TD 2014/25 Income tax: is bitcoin a ‘foreign currency’ for the purposes of Division 775 of the Income Tax Assessment Act 1997 (ITAA 1997)
• TD 2014/26 Income tax: is bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997 (ITAA 1997)
• TD 2014/27 Income tax: is bitcoin trading stock for the purposes of subsection 70-10(1) of the Income Tax Assessment Act 1997 (ITAA 1997)
• GSTR 2014/3 Goods and services tax: the GST implications of transactions involving bitcoin.

Considerations before investing in Bitcoin:

• Is it right for your needs and objectives? Consider if  an investment in Bitcoin would satisfy the ‘sole purpose test’? – Are you honestly investing in it for your retirement?
• In your circumstances does Bitcoin investing suit your risk tolerance (and the other member’s of your SMSF) and have you done enough research to validate your investment decision,
• Does you Trust Deed allow for investing in  bitcoins or cryptocurrencies. Read your deed and maybe ask the trust deed provider.
• Talk to your fund’s auditor before proceeding as they have to sign off on the investment’s validity annually so better to run the strategy by them upfront.

They may ask you to verify the following:

• If you wish to proceed with a purchase then have you amended your SMSF’s investment strategy to cater for this investment? Click the link for more details.
• Trap: Make sure you know who is in ‘control’ the bitcoins? All assets must be clearly in the name/control of the trustees of the fund
• How would the SMSF acquire the bitcoins? Do not acquire them from yourself or a “related party”
• How secure is the exchange/wallet you are storing your cryptocurrencies in. Some have been hacked and coins lost.

No matter what it is essential to do you research and not take a gamble with your retirement nest egg unless you have covered all your bases. 

Audit Tip:

Auditors and trustees can have access to the single public ledger that records Bitcoin. Websites such as Blockchain, BlockExplorer and Blockonomics allow input of a transaction ID to get detailed data of that Bitcoin transaction. Third party verification for auditors is therefore also possible. You can obtain a transaction list from the SMSF wallet provider and verify each holding. I am sure further tools will become available.

Here is another article worth reading as part of your research:

Bubbles, busts, investor psychology…and bitcoin by Shane Oliver

Looking for an adviser that will keep you up to date and provide guidance and tips like in this blog? Then why now contact me at our Castle Hill or Windsor office in Northwest Sydney to arrange a one on one consultation. Just click the Schedule Now button up on the left to find the appointment options. Do it! make 2016 the year to get organised or it will be 2026 before you know it.

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Liam Shorte B.Bus SSA™ AFP

Financial Planner & SMSF Specialist Advisor™

Tel: 02　98941844, Mobile: 0413 936 299

PO Box 6002 BHBC, Baulkham Hills NSW 2153

5/15 Terminus St. Castle Hill NSW 2154

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557

This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation and needs. This website provides an overview or summary only and it should not be considered a comprehensive statement on any matter or relied upon as such.