Inexperienced self-managed superannuation fund trustees are being warned to do their homework before investing in cryptocurrency as they risk inadvertently breaching crucial compliance regulations.
According to Bitcoin Trader partner Warrick Pleash, there are trustees investing in cryptocurrency on behalf of their SMSF as an individual - a clear but unintended violation of the Superannuation Industry (Supervision) Act 1993.
Pleash said the cryptocurrency boom over the last 12 months has seen a number of SMSF trustees register with digital currency exchanges such as CoinSpot and Coinbase which only allow users to sign up in their own name.
"In many cases, corporate trustees of funds or multiple trustees have taken money out of the fund and put it into their exchange account, breaching the SIS Act. It's what I call driving into the pothole of the crypto road - they've done it purely because they want to get involved in the craze and haven't thought about the ramifications," Pleash said.
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The crypto may still be documented by the trustee as an asset within the fund, but presents a challenge to auditors as it isn't held under the name of the fund.
"It's using money from the SMSF to buy the assets in the name of an individual person when you should have bought it in the name of the SMSF, almost like a loan. It's no different to an individual member opening a bank account in their name and transferring the super fund money into it," Pleash explained.
The auditor would then need SMSF members to pass a resolution in order to have an account or wallet address created in the correct name of all the trustees, which isn't available on a number of crypto platforms.
Pleash believes this, in addition to trustees having failed to ensure an investment in cryptocurrency is authorised under their trust deed or update their investment strategy, will be a major issue for financial advisers doubling as SMSF auditors in the months to come.
"This time around they won't experience a lot of it because audits being completed currently are generally for 30 June 2017 and there wasn't a lot of crypto bought then, but there was a whole lot bought between then and now," he said.
"In many cases, that will mean trustees have gone 12 months in the wrong name and then a further nine months to February 2019 before the auditor does the tax return and picks up on it."