Investing in cryptocurrency through a self-managed super fund (SMSF) is becoming increasingly popular. However, strict regulations apply, and one common compliance issue that we see at Audit your Superfund is proving the audit trail when transferring cryptocurrency from an exchange to a wallet.
The importance of an SMSF wallet
To trade cryptocurrency, an investor needs a unique encrypted code, known as a wallet. This wallet acts as the address where transactions are sent and received. For an SMSF, this wallet must be entirely separate from any personal cryptocurrency holdings. Any cryptocurrency investments made by the fund must be clearly identified as belonging solely to the SMSF, ensuring compliance with superannuation regulations.
Proving ownership and maintaining an audit trail
One of the key challenges with SMSF cryptocurrency investments is demonstrating that the assets belong to the fund. Since wallets are virtual and identified only via an IP address, registering the asset in the fund’s name can be complex. To satisfy audit requirements, trustees must provide:
- A clearly identifiable wallet address – The SMSF must have its own wallet, and the public address must be verifiable. Simply downloading a CSV file from an exchange like CoinSpot is not sufficient – documentation must be provided in PDF format.
- Evidence of the wallet’s connection to the SMSF – Auditors need confirmation that the wallet belongs to the SMSF. This means ensuring it is registered in the fund’s name and has a distinct address.
- A clear transaction history – The wallet’s transaction history must match precisely with the fund’s bank account transactions. To maintain a clean audit trail, it’s recommended that the SMSF opens a separate bank account specifically for cryptocurrency trading.
- A deed of trust or equivalent document – Because a wallet itself cannot directly prove the SMSF’s ownership of cryptocurrency, a legal document confirming the fund as the beneficial owner is required.
Additional audit challenges with external wallets
Once cryptocurrency SMSF assets are moved off an exchange to an external wallet (including cold storage), tracking and reporting become more manual and complex. External wallets require extra steps to verify ownership and maintain an audit trail. Trustees must provide additional documentation and declarations to confirm the assets belong solely to the SMSF and are not mixed with personal holdings.
Avoiding compliance pitfalls
Failing to maintain a clear and verifiable audit trail could result in compliance breaches for the SMSF. Trustees must ensure that every cryptocurrency transaction is properly documented and aligned with superannuation regulations. By keeping SMSF assets separate from personal holdings and providing auditors with the necessary records, trustees can avoid potential issues and ensure their fund remains compliant.
If you have any queries about ensuring your SMSF wallet meets cryptocurrency audit requirements, please contact us.