The legality of staking crypto in an SMSF is a complex issue that is still being debated. There is no clear consensus on whether or not it is legal, and the answer may depend on the specific circumstances of the SMSF. Many Crypto Exchanges locally have taken proactive steps and reduced the option to stake while the ATO and ASIC make a definitive decision on where it stands.
To fully understand how staking may be prohibited by the Act its important to understand the difference between off and on chain staking. As the two vary greatly from a custody standpoint.
On-chain staking is the process of locking up your cryptocurrency tokens on the blockchain network itself. This means that your tokens are held in a secure wallet on the blockchain, and you can participate in the consensus mechanism to help secure the network. In return for staking your tokens, you will earn rewards, typically in the form of more tokens. Due to this process potentially being deemed as a financial product it could be assumed that this form of staking is prohibited under the act.
Off-chain staking is the process of locking up your cryptocurrency tokens in a third-party platform or service. This means that your tokens are not held on the blockchain itself, but rather on the platform or service’s servers. In return for staking your tokens, you will earn rewards, typically in the form of more tokens or other cryptocurrencies. Many consider this as a form of ‘lending’ and would subsequently be potentially prohibited under the Act.
| Feature | On-chain staking | Off-chain staking |
|---|---|---|
| Location of tokens | On the blockchain | Off the blockchain |
| Security | Can be More secure (Never fully secure) | Less secure |
| Flexibility | Less flexible | More flexible |
| Rewards | Typically more rewards | Typically less rewards |
Some people argue that staking crypto is a form of lending, and that it is therefore prohibited for SMSFs. This is because the Superannuation Industry (Supervision) Act 1993 (SIS Act) prohibits SMSFs from lending money to anyone other than a member of the fund. Understanding this part of the Act and how it would relate to off-chain staking it could be assumed that this is prohibited under the Act.
Others argue that staking crypto is not a form of lending, and that it is therefore legal for SMSFs to engage in. This is because staking does not involve the transfer of ownership of the crypto assets, and it does not involve the SMSF providing any financial assistance to another party.
The Australian Taxation Office (ATO) has not yet issued any guidance on the legality of staking crypto in an SMSF. However, in a 2022 blog post, the ATO stated that “the provision of financial services by an SMSF is generally prohibited unless the SMSF is licensed to provide financial services.” This suggests that the ATO may view staking crypto as a form of financial services, and that it may therefore be illegal for SMSFs to engage in.
However, it is important to note that the ATO’s blog post does not specifically mention staking crypto. It is possible that the ATO would take a different view if the staking was conducted on an off-chain platform. Off-chain staking platforms do not involve the transfer of ownership of the crypto assets, and they may therefore be less likely to be considered as a form of financial services, that aside the ownership of the crypto asset needs to be validated.
Ultimately, the legality of staking crypto in an SMSF is a complex issue that is still being debated. If you are considering staking crypto in an SMSF, you should seek professional advice to ensure that you are compliant with the law. In addition the questions raised above are valuable when speaking with your SMSF professional.
Disclaimer: The information provided in this answer is not financial advice. You should always consult with a financial advisor before making any investment decisions.
