- By separating yourself from larger, generic super funds, you can manage your own superannuation through an SMSF.
- This approach allows you to legally diversify into digital currencies.
- It is possible to set either an individual trust or a company-owned trust.
Following Bitcoin's first ascent, a growing number of self-managed super fund (SMSF) investors have added cryptocurrencies to their portfolios. Many investors are divided about cryptocurrencies because of their decentralised nature. SMSF trustees should be informed of the dangers and restrictions associated with holding Bitcoin in an SMSF.
We have identified a few important areas that SMSF trustees and advisers should consider if they want to include cryptocurrencies like Bitcoin in their portfolios.
In this guide
Legal considerations
Cryptocurrencies like Bitcoin are capital gains tax (CGT) assets, and SMSFs can buy, sell, and invest in them just like any other asset. When an SMSF engages in these transactions, it must adhere to the same regulatory requirements as conventional asset investments.
The Australian Taxation Office (ATO) states that you can invest in cryptocurrency, but reading their SMSF cryptocurrency investing instructions reveals that it is not as simple as you might expect. Bitcoin and other cryptocurrencies, according to the ATO, are CGT assets, not money. This implies that every time you buy, sell, or trade a cryptocurrency, you must keep a complete record so that it may be evaluated and taxed appropriately. Every trade you make via your SMSF is subject to CGT.
To be compliant, funds must adhere to the ATO's regulations under the Superannuation Industry (Supervision) Act 1993.
Any changes to the law should be communicated to all fund trustees. Due to the fact that all fund trustees are responsible for guaranteeing compliance, they are also expected to maintain compliance (even if they received help from a professional).
Is crypto safe for SMSF?
Crypto is volatile. Bitcoin is volatile. If slow and conversative is all the risk you can handle then Bitcoin is not 'safe'.
Although cryptocurrencies can be used to pay for goods and services if a seller is willing to accept them, they are not legal tender. This implies that, unlike the Australian dollar, which is backed by the Reserve Bank and the Australian government, cryptocurrencies have no bank or government support. As a result, if a cryptocurrency that investors own ceases to exist for any reason, they are unlikely to receive government assistance.
Australia has embraced the digital currency revolution by legislating and regulating digital currency exchanges. At this time, global market capitalisation is increasing, and the Australian market appears to be quite progressive. While you never know what will happen with any financial product in the future, Bitcoin is another alternative you can use right now to diversify your SMSF assets.
SMSFs vs. Retail and industry super funds
When it comes to cryptocurrency investment, Australia has a very favourable tax system to deal with. The SMSF is one of the most popular options for investors who wish to include Bitcoin and other cryptocurrencies in their investment strategy.
Unlike retail or industry super funds, an SMSF gives members more control over asset selection and insurance. The SMSF is an extremely versatile investment tool. Cryptocurrency, gold, diamonds, racing horses, yachts, private equity, and collectibles such as wine and art are examples of alternative assets that can be allocated to an SMSF.
According to the ATO, superannuation regulations require trustees and members to keep their fund's assets separate from their personal holdings. The cryptocurrency investments of an SMSF must be stored and managed independently from the trustees' and members' personal or commercial investments.
Cryptocurrency ETFs
Spot exchange traded funds (ETFs) in the world's two major cryptocurrencies, Bitcoin and Ethereum, have been authorised by Australia's regulator. ASIC has issued best-practice recommendations and criteria for Bitcoin ETF issuers, focusing on crypto asset security and storage.
The Spot Bitcoin funds are preferred by the crypto industry over futures-backed Bitcoin funds because they offer more accuracy, stability and transparency. Australia's decision to give regulatory clarity for physically-backed cryptocurrency exchange traded funds (ETFs) sets a precedent for other countries to follow.
How to add crypto to your SMSF
First, cryptocurrency investing must be allowed in the SMSF's investment strategy. In the vast majority of situations, the investment plan will need to be updated to allow for cryptocurrency investment. The SMSF trustees will have to wait for permission from the ATO after filling out a form with a cryptocurrency SMSF service provider like New Brighton Capital.
Second, trustees must complete further procedures when the ATO accepts the SMSF, including:
- creating an account on a secure site
- opening a bank account for the SMSF
- rolling over your super balance into your new SMSF
- opening a new crypto trading account for the SMSF, and
- setting up data feeds.
Lastly, the trustee oversees the safekeeping of the cryptocurrency once it has been purchased. There have been several reports of exchange breaches and frauds, so keeping crypto on an exchange is typically not a smart idea. A hardware wallet or a paper wallet are the two most prevalent solutions.
To use a hardware wallet, the SMSF would need to buy one and store the cryptocurrency on it. It's crucial to maintain this cryptocurrency separate from personal possessions. Another method is to use a paper wallet and keep it in a secure location.
Important
The SMSF trust deed
The trust deed is also an important component of the SMSF set-up. The trust deed is a legal document that lays forth the regulations that govern an SMSF. The fund's trust deed also outlines the trust's obligations, terms and conditions.
Several exchanges — including Swyftx, CoinSpot, Independent Reserve, and Digital Surge — make getting started with your crypto SMSF easy. Here’s how to do it.
- Bring in your current SMSF and they'll set up your account in less than 24 hours. If you don't already have an SMSF, they can help you set one up.
- Send your information and they'll get back to you as soon as possible to get you set up.
- They will electronically check your ID and SMSF papers when they contact you. You are now prepared to make a purchase.
Fees
SMSFs are a sort of retirement savings fund, according to the ATO. Members of SMSFs, unlike other forms of funds, also serve as trustees. As a result, SMSF trustees must follow all applicable superannuation and tax regulations. The tax advantages of SMSFs make it a popular investment vehicle for Bitcoin investors. Income is taxed at a rate of:
- only 15%, under current SMSF regulations;
- 10% effective rate of long-term profits;
- 0% on income earned by assets held in a retirement pension.
The high amount of continuing fees that may be necessary for fund upkeep is a recurring concern with bitcoin self-managed super funds. Some of the costs of operating a cryptocurrency SMSF include:
- Investment fees
- Accounting fees
- Audit fees
- Tax services
- Legal Services
- Financial Advice
- ATO supervisory levy
Many SMSF providers offer a fixed-fee solution that includes all compliance fees.
Pros & Cons
Pros
- Investing in cryptocurrency through an SMSF may have tax advantages over investing in one's personal capacity, just as it does with other assets.
- Super is taxed at a concessionary rate, which is generally lower than individual tax rates.
- An SMSF can have up to four members, allowing you to take advantage of investment possibilities that you would not have access to as an individual.
Cons
- Ownership/custody of crypto assets may not be in your own name at some exchanges, which is especially important if you have large holdings.
- Profits generated from cryptocurrency investments in an SMSF cannot be used for personal gain.
- Profits must stay in the SMSF solely for the purpose of delivering retirement benefits when the time comes.
Verdict
Cryptocurrencies are an investment opportunity for SMSFs. They are, however, widely recognised as a high-risk investment category that necessitates a high level of technical expertise. For these reasons, before investing in cryptocurrencies or SMSFs, it's a good idea to seek independent financial advice from someone who knows both.
Cryptocurrencies have a high level of price volatility. SMSF trustees should assess their crypto investment selections to see if they are appropriate. The trustee is ultimately responsible for these financial decisions.
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