As cryptocurrencies become more mainstream, many Australians are turning to the asset class as a form of long-term investment. Alongside this, crypto Self-Managed Super Funds (SMSF) are increasingly used as a vehicle to acquire digital assets such as Bitcoin (BTC) and Ethereum (ETH) to build retirement savings.
In this guide, we discuss the advantages and key risks of using an SMSF to invest in cryptocurrencies, as well as break down the steps to set up a crypto SMSF. We will also list and compare the best crypto exchanges in Australia for SMSF accounts.
An SMSF is a private retirement or long-term savings fund that is driven and managed by its members or trustees. They are essentially a way of saving funds and assets for retirement. On the other hand, industry and retail super funds will generally focus on basic assets such as the stock market and charge an annual fee for their management services.
Because SMSFs are solely managed by the trustee and members, the key potential risks revolve around ensuring that the fund is compliant with legal and regulatory requirements. Other major responsibilities include making investment decisions that benefit the financial interests of all its members.
In Australia, cryptocurrencies are an asset class that is allowed to be obtained as part of an SMSF. This is due to tax determinations released by the Australian Tax Office (ATO) in 2014 that stated that digital currencies are Capital Gains Tax (CGT) assets under the Income Tax Assessment Act 1997.
However, there are some criteria that must be met when investing in cryptocurrency as part of an SMSF.
- The SMSF must comply with all legal provisions outlined by the ATO
- The fund’s investment strategy must permit cryptocurrency as an investment class that can be obtained
- The trust deed must allow investing in cryptocurrencies In Australia
When an SMSF conducts the acquisition of CGT assets such as Bitcoin and Ethereum, it must comply with several super and tax-related regulatory requirements to ensure compliance. Some of the key requirements are described below.
The Purpose of A Crypto SMSF
The only objective of an SMSF, irrespective of whether crypto is obtained or not, is to provide financial benefits to trustees and members during their retirement. This includes their dependents if a trustee or member passes away before retirement.
If an investment decision directly or indirectly leads to the financial benefit of a trustee or member, then the SMSF may not satisfy the sole purpose test. For example, if affiliate commissions are gained from the trading of cryptocurrencies in the SMSF then this would represent a breach of the sole purpose test.
The ATO considers cryptocurrencies as property or assets and is subject to taxation if a capital gains event is triggered. Therefore, any financial gains or profits made from the investment of Bitcoin and altcoins will be subject to tax and must be reported to the ATO for the financial year.
A taxable capital gains event occurs when:
- The disposal or sale of cryptocurrencies leads to a financial gain or profit.
- The market value of the held digital assets increases over time and is valued higher at the end of the financial year.
For more information, read our Australian crypto taxation guide.
The trust deed of the SMSF must outline cryptocurrencies to be permittable assets that can be obtained. If the deed does not specify or at least consider this, then the deed will need to be amended before crypto can be purchased.
A key step in setting up a crypto SMSF is developing the investment strategy. The strategy must acknowledge cryptocurrencies as investable assets as well as consider their volatile nature and associated risks.
Since digital currencies are typically stored in online wallets that are only identifiable by an IP address, difficulties may arise in demonstrating ownership of the SMSF-held crypto assets. To mitigate against this, a detailed and complete history of all trading activities associated with the crypto SMSF must be maintained. To support this, it must be demonstrable that all transactions completed are completed between the SMSF bank account and wallet. Additionally, the trust deed should outline that the SMSF is the beneficiary owner of the crypto.
Keeping SMSF & Personal Assets Separate
To ensure compliance with ATO requirements, digital currencies obtained as part of an SMSF must be kept separate from personal assets. Furthermore, the transfer of crypto from a personal wallet to a crypto SMSF and vice versa is not permitted to be undertaken. Doing so might be a breach of the sole purpose test and it may become difficult to ascertain ownership of the SMSF assets.
Valuating Your Crypto SMSF
The valuation of all SMSFs in Australia must be undertaken in accordance with ATO guidelines. At the time of writing, the ATO will accept the market price of a digital currency as published by the cryptocurrency exchange on 30 June. The valuation should be based on an objective rationale that is supported by data.
Audits will need to be undertaken every year by an approved SMSF auditor to ensure that the valuation of the held assets is robust, reasonable, and backed up by data.
- More control. As opposed to industry or retail super funds where investment decisions are made on behalf of the beneficiaries, SMSF investment decisions are undertaken by its trustees and members. Furthermore, the types of investments that can be made for an SMSF can be more varied. In addition to cryptocurrencies, assets that can be bought include gold, property, artworks, and other collectibles of value. One of the benefits of investing in a crypto SMSF is that investment decisions can be made to target specific coins or tokens that are seen to provide optimal long-term returns. If changes or trends in the market are observed, then investment activities can change to adapt to the market.
- Attractive Tax Benefits. In Australia, the maximum tax rate on SMSF-held digital assets is 15%. If the assets are held for more than one year, then the concessional tax rate is 10%. It is important to note, that if the disposal or sale of crypto is undertaken while members of the crypto SMSF are in a pension phase then capital gains incurred will be exempt from taxation. Further to this, any pension funds from the disposal of cryptocurrencies will be paid in cash and not crypto.
- Bigger Portfolios Are Cheaper. The setup and ongoing management costs for a crypto SMSF are typically fixed at around $10,000 per year. While this seems rather steep at first, the cost of maintaining an SMSF gets more economical as the value of the portfolio increases. Consider that retail super investments usually take a percentage cut in management fees – approximately 1.1% to 1.3%. This means that higher net-worth individuals can maximize their finances, as fees do not scale with the size of an SMSF portfolio.
- Asset Protection. SMSF assets are typically shielded from being seized by creditors. However, the Australian government’s Bankruptcy Act outlines that the assets may be clawed back by creditors if a debtor uses their crypto SMSF as a shell to hide them.
Whilst the advantages and benefits of setting up an SMSF to invest in cryptocurrencies may be appealing, there are some downsides and limitations to be aware of.
- Upfront costs. In the long run, a crypto SMSF will likely be far more money-efficient than industry or retail super funds. However, getting started can be quite an expensive process. Upfront costs to consider include fixed levies, professional fees from independent advisors, investment fees, and accounting and audit fees. With these costs in mind, an SMSF is generally considered to be financially beneficial if the value of the crypto portfolio is greater than $200,000 AUD. With that said, there is no actual minimum requirement for a crypto SMSF’s opening balance.
- Labour intensive. Simply put, managing an SMSF is more difficult than just using a typical super fund. Just the process to get started can be quite lengthy and complicated. For many, it is simply easier to let someone else do all the work for them. There are two activities that will consume time and effort. Firstly, ensuring the cryptocurrency SMSF meets legislative and regulatory requirements, and secondly, identifying suitable investment choices and carrying them through. According to the Australian Government, the average SMSF owner will likely spend over 100 hours a year managing their investments.
- Mistakes can be made. Since all financial decisions are made by the trustees and members of the SMSF, there is a high level of responsibility to ensure that sound investment choices are made. If not, then this may affect the long-term performance of cryptocurrencies and the returns may not be as good as initially planned. For cryptocurrencies, a general rule of thumb is to stick to popular crypto with high market capitalization such as Bitcoin, Ethereum, Cardano (ADA), Solana (SOL), and Ripple (XRP).
Creating a new SMSF account for crypto will require a valid email address and a strong password. It is important to note that since SMSF and personal assets must be kept separate, log-in details for the SMSF account will need to be unique to any personal account with the exchange.
All Australian crypto exchanges are required to be registered with AUSTRAC. This means that exchanges are legally required to obtain basic details of new customers to confirm their identity (Know Your Customer). This is often a streamlined process where users can quickly upload a copy of their passport or driver’s license online.
Provide the crypto exchange with relevant information pertaining to the SMSF including SMSF name, ABN, trust deed document, and trustee information (ACN and director/beneficial information if a corporate trustee). The exchange will submit the information to the ATO where it will be verified against government sources to ensure compliance.
Wait for approval from the exchange that the onboarding process has been completed. Following this, Australian Dollars (AUD) can be deposited into the wallet to obtain digital currencies.
There are several Australian-based crypto exchanges that support SMSF investors. To provide this service, these exchanges have partnered with specialist SMSF professionals such as New Brighton Capital. Based on our reviews, we have determined that the four top SMSF exchanges are Swyftx, Independent Reserve, CoinSpot and Digital Surge.
Swyftx is a top-rated cryptocurrency exchange based in Australia that has over 550,000 members. The exchange is best known for its modern and feature-rich user interface on desktop and mobile app, combined with competitive trading fees and spreads. The fees start at 0.6% per trade with spreads as low as 0.45% which is very competitive in the Australian market. Further discounts for higher trade volumes can be obtained on inquiry.
Swyftx offers over 310 digital currencies that can be added to an SMSF portfolio which includes the major assets like Bitcoin, Ethereum, XRP and lesser-known altcoins. The exchange is renowned for its excellent customer service and support teams that extend to its dedicated team for SMSF investors. Moreover, Swyftx is an approved crypto exchange with New Brighton Capital that is a reputable SMSF provider in Australia that has helped thousands of individuals.
2. Independent Reserve
Independent Reserve is a premier crypto platform that has over 80,000 SMSF investors on its books since the exchange was established in 2013. A reputable and secure provider, Independent Reserve provides a compliant environment with reporting and taxation tools to manage a crypto SMSF. There is even a VIP Over-the-counter (OTC) desk for large trades that can be executed using limit orders or a dollar-cost averaging strategy. Like Swyftx, Independent Reserve is a partner with New Brighton Capital which are a professional super fund firm.
CoinSpot offers one of the largest selections of cryptocurrencies to buy and sell in Australia with more than 360 coins to choose from. A long-running and trusted exchange that was founded in 2013, CoinSpot is a great option to create and manage a Bitcoin and crypto SMSF. Partnered with New Brighton Capital, customers can access end-of-year financial tools and reporting to make it easier to meet tax obligations.
Combined with an OTC desk for trading large amounts, there is a unique feature of an API that can allow account managers and accountants to track the individual's overall digital currency SMSF portfolio. The fees on the CoinSpot OTC desk are very competitive at 0.1% per trade.
4. Digital Surge
Digital Surge is another cryptocurrency exchange that provides support for self-managed super funds. The exchange itself has a superior user interface that makes investing in crypto simple and hassle-free compared to other Australian exchanges. Another top feature is the low trading fees of 0.5% that reduce with higher trading amounts. Similar to Swyftx, the exchange has smaller spreads compared to its competitors which makes Digital Surge a good fit for high net-worth individuals that want to setup a crypto SMSF account.
Buying Bitcoin is a popular cryptocurrency investment choice for many Australian SMSF investors. The decentralized digital currency can be bought from a reputable exchange and transferred into the SMSF wallet. Because the Australian Tax Office (ATO) considers BTC as an asset, it is subject to taxation at a maximum rate of 15% if a capital gains event is triggered.
Staking cryptocurrencies associated with the SMSF can be undertaken. All staking rewards (e.g. newly minted coins) will need to be directly transferred into the SMSF wallet. If rewards are allocated to non-related parties, then this might represent a breach of the sole purpose test. To learn about which coins are the best for staking and provide the highest returns, read this article next.
Deciding to create and operate a crypto SMSF is a big decision with many mitigating factors that must be considered. It can be a long, complex, and expensive process, and it is always advisable to obtain professional advice prior to getting started. Despite this, there are plenty of benefits that come with using an SMSF to invest in crypto. As the crypto world expands, owning a crypto-focused SMSF is becoming a popular option for Australians.
Disclaimer: This information is general and does not constitute tax, legal or financial advice. Readers should seek professional advice from a qualified SMSF professional before making any decisions.
Kevin is the founder and chief editor at HedgewithCrypto which he started in 2019 and has reached over 1.5 million visitors worldwide. He is passionate about cryptocurrency as an emerging technology and is heavily involved in the fast-growing fintech space. An experienced trader growing his portfolio since 2013, he has a strong understanding of investing in the crypto market using exchanges, brokers and derivatives platforms.