Crypto timing issues flagged with payment of benefits

One of the essential parts of making a benefit payment is ensuring the assets have been appropriately valued, he said speaking at the SMSF Adviser Technical Strategy Day.

“It’s now much easier to make a benefit payment with cryptocurrency as exchanges have all those values available far more frequently due to the rate of exchange,” said Mr Miller.

“This is perhaps where cryptocurrency and blockchain technology is far more advance than say the share market in that you can transact [anytime] versus the stock exchange which is shut for certain hours.”

However, where SMSFs do decide to make a lump sum withdrawals involving cryptocurrency, Mr Miller said SMSF clients need to be mindful of issues with timing.

“We can make lump sum withdrawals but you’ve got to get your valuations right and the timing of the [withdrawal] could actually significantly impact the size of the benefit,” he explained.

“Therefore, if you’re choosing to make a benefit payment and sell or transfer cryptocurrency and you wait and the market is inflated, you may increase the taxation on that transaction if its a payment that has tax associated with it.”

Mr Miller stressed that the sole purpose test is an important requirement to consider when making any investment in a fund.

“Ultimately when we’re making investment decisions, we’re making them with largely one goal and that is how can this decision provide for our retirement benefits? [Trustees need to consider] when they cease employment, reach age 65 or pass away prior to retiring how they’re going to be able to pay benefits to beneficiaries,” he said. 

Access to liquidity is therefore an important consideration for SMSFs, he said.

“One of the issues that you often hear about with cryptocurrency investments is that once you’re in it, you can’t get out of it and so its takes a long time to get out of it,” he cautioned.

Mr Miller noted there have been improvements with some of the Australian based exchanges in terms of liquidity.

“In Europe there is an in principle agreement that exchanges need to trade within 24 hours,” he said.

“With places like Europe investigating the idea of ensuring that transactions happen a lot quicker, this will certainly help from a liquidity point of view in terms of the capacity [of the fund] to pay certain benefits out.”