An increasing number of self-managed superannuation funds are being established by younger people looking for alternative ways to invest their retirement savings. A recent poll conducted by Harris Poll has shown 27% of those aged 18-34 prefer Bitcoin over stocks. There are three main factors to consider before you venture into SMSF investment.
SMSF investment in Bitcoin must be:
1. Allowed under the fund’s trust deed
Trustees and members need to ensure that investment in Bitcoin is allowed under the SMSF’s deed. If your fund does not allow for Bitcoin Investment you may be required to vary the deed to allow for the investment.
2. In accordance with the fund’s investment strategy
Your investment strategy is your plan for making, holding, and realizing assets consistent with your investment objectives and retirement goals. It should set out why and how you’ve chosen to invest your retirement benefits in order to meet these goals. Before investing in Bitcoin, SMSF trustees and members should consider the level of risk of the investment.
It is important to note that trustees do have a right to invest within a single asset class should they choose to do so. However, your investment strategy should refer to the risk associated with an undiversified investment portfolio and the reason behind the single asset investment. The trustee(s) can be assessed by the ATO on the awareness of the risk.
3. Comply with Superannuation Industry (Supervision) Act 1993 (SISA) and Regulations (SISR)
(I) Ownership and separation of assets
An SMSF Bitcoin investments must be held and managed separately from the personal or business assets of trustees and members. The fund must be able to provide evidence of a separate Bitcoin wallet for the SMSF. All the trustees and members should keep their personal investments in Bitcoin separate and any transactions made in the wallet should only be linked to the SMSF account.
(II) Sole-purpose test
An SMSF must be maintained for the sole purpose of providing retirement benefits to trustees and members, or to their dependents if a member or trustee dies before retirement.
In order to meet the sole-purpose test you need to ensure that any SMSF investment in Bitcoin does not financially benefit, directly or indirectly, the trustees or member when making investment decisions and agreements.
(III) Pension or benefit payments
When a trustee or member satisfies a condition of release, the SMSF can make an in-specie lump sum payment by way of transfer of Bitcoin. However, pension payments must be made in cash.
Trustees and members will need to consider the fund’s trust deed and any Capital Gains Tax (CGT) implications associated with the transfer of assets such as Bitcoin.
There's no minimum balance required to set up an SMSF, but it is important for you to understand that being a trustee comes with responsibilities. It is best to seek the advice of a professional before establishing a Self-Managed Superannuation Fund.