Australian super funds gorge on cryptocurrency

Earlier this year, the Australian Securities and Investments Commission (ASIC) issued a warning on an increase in marketing encouraging Australians to switch from retail superannuation funds to SMSFs so they can invest in ‘high return’ portfolios. The regulator states that crypto-assets are a high risk and speculative investment and best practice is to seek advice from a licensed financial adviser before agreeing to transfer superannuation out of a regulated fund into an SMSF.

An example of one of these schemes was A One Multi Services Pty Ltd that was shut down by ASIC late last year. The company promoted a scheme encouraging investors to roll their superannuation into an SMSF, then for the SMSF to loan money to A One Multi to generate “returns of between 10% and 20% on the investment and perhaps as high as 26%.”

Over 60 SMSFs transferred $25 million into A One Multi’s accounts between January 2019 and June 2021. The money “invested” for the clients, between $7 million to $22 million of Bitcoin, was held in the name of one of the directors. An additional $5.7m was used by the directors to acquire property.

Trustees are free to invest in assets that meet the requirements of the fund and comply with the regulatory requirements:

• Trust Deed - must allow for cryptocurrency assets. Most SMSF trust deeds are drafted broadly to enable trustees to invest in assets permitted by the superannuation laws and leave the investment strategy to manage the choice of assets and their appropriateness. However, it is important to check.

• Investment strategy - With cryptocurrency’s high volatility and risks, there must be clearly articulated information in the Investment Strategy. That is, it must articulate the trustees’ plan for making, holding and realising assets in a in a way that is consistent with the retirement goals of members being mindful of the member’s individual circumstances.

• Separation of assets – cryptocurrency assets must be held in a wallet in the name of the SMSF and the IP address is provided to the SMSF auditors to verify the transactions (against the fund bank account). Problems often arise when a wallet (in the name of the SMSF) is connected to a personal credit card to acquire cryptocurrency. In these cases, the payment may be considered as either a contribution or a loan to the SMSF.

• Sole purpose test - Your SMSF needs to meet the sole purpose test to be eligible for the tax concessions normally available to super funds. This means your fund needs to be maintained for the sole purpose of providing retirement benefits to your members, or to their dependants if a member dies before retirement.