When an investor uses SMSF funds to invest in cryptocurrency (or any asset) via an overseas platform like Binance, Bybit, MEXC or others, but holds the account in their *personal name* rather than the SMSF's name (i.e., in the name of one of the members of the fund), this constitutes a serious compliance issue.
SMSFs can invest in crypto, but the assets must comply with standard super rules—no exceptions for digital assets.
Attempting to use a non-SMSF account to hold SMSF-owned crypto setup risks the fund being deemed non-compliant, which could lead to severe tax penalties (e.g., up to 45% tax on the fund's assets and income).
Always consult a licensed SMSF professional, such as Grow SMSF, for personalised advice, as breaches can result in auditor contravention reports (ACRs) to the ATO.
Failure to Separate SMSF Assets from Personal Assets
Rule Breached: Section 52(2)(d) of the SIS Act requires trustees to include a covenant in the fund's trust deed to keep SMSF money and assets separate from those of the trustees, members, or related parties. This is reinforced by Regulation 4.09A of the *Superannuation Industry (Supervision) Regulations 1994* (SISR), which mandates that fund assets be held separately to protect them and ensure clear ownership.
Why It's a Breach: Holding the crypto account in your personal name mixes SMSF funds with personal assets, making it unclear who owns the investment. For crypto specifically, the ATO emphasises that wallets or exchange accounts must be legally owned by the SMSF (e.g., registered under the fund's ABN or trustees' names as trustees)—not personally—to count as a fund asset. This is a common contravention, often leading to ACRs.
Consequences: The ATO may issue an education direction, administrative penalties (up to $19,800 per trustee as of 2025), or disqualify trustees. In severe cases, the fund loses its complying status, triggering a 45% tax on assets and future income.
Sole Purpose Test Violation
Rule Breached: Section 62 of the SIS Act mandates that the SMSF be maintained solely for providing retirement benefits to members (the "sole purpose test").
Why It's a Breach: Depositing SMSF money or crypto into a personal account could imply personal benefit or use (e.g., easier access for non-retirement purposes), especially with volatile assets like crypto. The ATO scrutinises crypto investments for this, requiring them to align with the fund's documented investment strategy (which must consider risk, diversification, and liquidity).
Consequences: Breaches here often compound with separation issues, leading to enforceable undertakings or civil penalties.
Other Potential Related Breaches
Acquisition from Related Parties: Crypto cannot be acquired from trustees or related parties (section 66 of the SIS Act), unless exceptions apply—no issue if bought on an exchange, but personal accounts blur this line.
Record-Keeping and Audit Failures: Poor titling makes it hard to prove the investment's legitimacy during audits, breaching section 103 (record-keeping) and potentially Regulation 8.02B (annual investment strategy review).
In-House Assets Limit Breach: If the personal holding is reclassified as a loan to a member, it could exceed the 5% in-house asset threshold (Part 8 of the SIS Act).
Recommendations to Avoid Breaches
Set up exchange accounts directly in the SMSF's name using its TFN/ABN, with an Australian-based exchange or platform that supports SMSF accounts;
Update your SMSF investment strategy to explicitly include crypto, addressing risks like volatility and security (e.g., private key management)
If a breach has occurred, self-report to the ATO for potential leniency via an early voluntary disclosure (speak to Grow first!).
This is not financial advice—refer to the ATO's SMSF resources or seek professional guidance to rectify any issues.
Scam Warning
We are aware that overseas-based scammers have been encouraging Australian investors to set up SMSFs with the intention of stealing their superannuation monies.
The key avenue they use to extract funds from Australia is to get the SMSF trustees to set up an account with a legitimate Australian-based cryptocurrency exchange or platform, then have them buy stablecoins like USDT and transfer those to a non-SMSF account like Binance and then have the investor send the crypto to the scammers' address.