SMSFs cannot use limited recourse borrowing arrangements (LRBA) to invest in cryptocurrency within their fund as most lenders will not consider these assets suitable for a loan and related-party loans will fail safe-harbour provisions, according to a specialist auditor.
Tactical Super director Deanne Firth said the use of LRBAs with cryptocurrencies is something she has yet to see with an SMSF, but it was highly unlikely they would ever be able to be used due to the current lending and regulatory landscape.
“We personally have not seen any LRBAs applied to crypto and a lot of banks have stopped offering LRBAs even for property in Australia,” Firth said during a recent webinar hosted by The Auditors Institute.
“The actions of some of the other banks and lenders that still have LRBAs on property show there is now a reluctance for them.
“One bank has put the interest rates up significantly on property LRBAs, trying to get people to refinance away from that bank without actually saying they don’t want them anymore. So the Australian market is not ready for a compliant LRBA for cryptocurrency.”
She noted the only other option would be to put in place a related-party LRBA, but there were no safe-harbour provisions in place for this type of SMSF investment.
“Additionally, the auditor would also need proof that the related-party LRBA was at a market rate of interest and provided on an arm’s-length basis,” she said.
“Given there is no unrelated market rate interest, an auditor would be unable to confirm the arm’s-length basis of the loan or the interest, so there really is not currently a way for compliant LRBAs for crypto in Australia.”
During the same presentation, Tactical Super director Jacob Kewley noted that while the sole purpose test was an area of concern for some SMSF auditors, when it came to cryptocurrency they should not judge the investment as being unsuitable within a fund portfolio if the members attested it was consistent with their retirement plans.