Crypto in SMSFs? Read This Before You Regret It

Crypto in SMSFs? Read This Before You Regret It

Cryptocurrency has stormed onto the investment landscape and many SMSF trustees are eager to ride the wave. But here’s the problem: crypto might be the most misunderstood and mismanaged asset class in the SMSF world today.

As SMSF auditors, we’ve seen the good, the bad, and the utterly non-compliant. A lack of documentation, breaches of trustee duties, and wallet chaos are more common than you think.

So before your fund takes the plunge (or if you already have), here’s what every SMSF trustee needs to get right, before the ATO or your auditor comes knocking.

1. Does Your Trust Deed Allow It?

Before a single satoshi is bought, check your fund’s governing rules. If your deed doesn’t explicitly permit crypto or digital assets, your investment could be invalid from day one. It’s not enough to assume it’s allowed—trustees must review the deed and amend it where needed, ensuring it includes broad or specific investment powers covering cryptocurrencies.

2. Trustees Must Acknowledge Their Duties

The ATO Trustee Declaration is not a checkbox exercise. By signing it, trustees confirm they understand and will comply with SIS law—including separation of assets, maintaining proper records, and acting honestly in all fund decisions. When crypto is involved, these duties become even more critical due to the higher complexity and risk.

3. The Sole Purpose Test Still Applies

SMSFs exist solely to provide retirement benefits to members or their dependants. Trading crypto for fun, using SMSF wallets for speculation, or treating the fund like a day-trading account undermines the sole purpose test. This test is one of the pillars of the SIS Act—and breaching it can lead to the fund becoming non-compliant.

4. Your Investment Strategy Must Be Real

A generic PDF won’t pass muster. Your investment strategy must:

• Specifically mention cryptocurrency,
• Justify the level of risk the fund is exposed to,
• Consider member age, investment horizon, and retirement needs.

Better yet, update your strategy before you invest, not after. The ATO has made clear that a “backdated” strategy is not acceptable evidence.

5. Document All Trustee Decisions

Whether it’s a decision to invest in Bitcoin or to change exchange platforms, record everything. Minutes of trustee meetings must show that decisions were made deliberately and in line with the fund’s objectives. Text messages, casual conversations, or undocumented trades don’t cut it.

6. Every Trustee Must Understand the Asset

Crypto is not “set and forget.” Trustees who don’t understand what they’re investing in fail their duty of care. That includes knowing the risks, the volatility, the liquidity issues, and how private keys and cold wallets work. Education is governance.

7. Crypto Must Be Held in the Name of the SMSF

Personal wallets? That’s a big red flag. Under SIS regulations, fund assets must be kept separate from members’ personal assets. That means:

• The wallet or account name must clearly identify the SMSF,
• The SMSF must control the wallet and private keys,
• Trustees must not mingle personal and fund assets.

Even if intentions are good, co-mingled wallets can destroy audit trails.

8. Don’t Breach Section 65—Avoid Financial Assistance

Transferring crypto in or out of personal wallets, “borrowing” tokens, or facilitating a trade with a family member? All could breach Section 65 of the SIS Act, which strictly prohibits SMSFs from providing financial assistance to members or relatives. Even indirect assistance is off-limits.

9. Use Cold Storage—But Use It Wisely

Cold wallets (offline storage) are highly secure—but they come with risks. If the wallet or keys are lost or forgotten, the crypto may be gone forever. Document everything: wallet addresses, access protocols, backup locations, and trustee responsibilities. Store this information securely and ensure it’s accessible in a contingency.

10. Understand the Risks of Crypto Exchanges

Crypto held on an exchange is essentially an IOU—the exchange holds the private keys, not you. If the exchange fails, you might lose access to your crypto. Trustees must conduct due diligence on platforms and be aware of risks, especially with offshore or unregulated exchanges.

11. Be Audit-Ready—Evidence Is Everything

Your auditor doesn’t need to see your enthusiasm—they need evidence:

• Wallet ownership (with screenshots),
• Platform statements,
• Transaction histories (AUD values at the time of trade),
• Independent valuations if crypto has been used for barter or acquisition.

Audit failure isn’t just a headache—it’s a risk to fund compliance and trustee reputation.

12. Prepare for Trustee Death or Incapacity

What happens if the trustee managing the crypto becomes incapacitated or dies? Will anyone know how to access the cold wallet or seed phrase? Ensure access information is properly documented and stored securely—ideally with legal and estate planning professionals involved.

13. Keep Meticulous Records

Every transaction must be documented:

• Date and time,
• Crypto and AUD value,
• Purpose of transaction,
• Exchange or wallet used.

Poor records create tax and audit nightmares—and may prevent accurate reporting of capital gains, income, or expenses.

The Bottom Line? Compliance Is Non-Negotiable.

Cryptocurrency isn’t going anywhere—but neither is the law. As SMSF auditors, we’re not anti-crypto. But we are pro-compliance. Every trustee has a duty to ensure that crypto investments are not just exciting—but legally robust, properly documented, and consistent with their fund’s purpose.

At Saul SMSF, we specialise in auditing high-risk and complex SMSFs—including those with crypto. Our forensic approach ensures your fund can stand up to scrutiny from both auditors and the ATO.

Got an SMSF with digital assets? Don’t risk regret—get it right the first time.