Table of Contents
- 1 What Is An SMSF?
- 2 The ATOs Stance On Digital Assets
- 3 Can I Use My SMSF To Invest In Crypto?
- 4 Regulations & Legalities Of Cryptocurrency SMSF
- 5 What Are The Advantages Of A Cryptocurrency SMSF?
- 6 Disadvantages Of A Crypto SMSF
- 7 The Costs Associated With Crypto SMSFs
- 8 How To Setup A SMSF Cryptocurrency Account With An Exchange
- 9 Best Crypto Platforms in Australia For SMSF Investors In 2023
- 10 Final Thoughts
- 11 Frequently Asked Questions
The Australian Tax Office (ATO) recognizes that cryptocurrencies are a legitimate form of investment for Self-Managed Super Funds (SMSF). With cryptocurrencies becoming mainstream and the level of adoption increasing, more and more Australians are investing in crypto as part of their SMSF.
In response to the growing popularity of cryptocurrency SMSFs, Australian exchanges are now offering SMSF services to support market needs.
This guide breaks down the nuances of investing in crypto as part of SMSFs, the legalities, and how to set up an SMSF with a secure and reputable cryptocurrency exchange in Australia.
The information contained in this article is not intended to act as legal, tax, investment, or financial advice. SMSF investors should understand the potential risks and seek independent and professional advice when working through their obligations and requirements.
What Is An SMSF?
An SMSF is a private super fund that you manage by yourself for savings funds and assets for retirement. SMSFs are inherently different from industry and retail super funds. For example, the members of the SMSF are also usually the trustees. You develop the structure and investment strategy, choose the investments, select the insurance, and ensure legal compliance. There are several notable advantages, however, there are also potential risks that you need to be aware of.
Your choice of investment for an SMSF is not limited to those that are typically associated with retail funds. In addition to obtaining digital currencies as part of your SMSF portfolio, you can also acquire assets such as gold, property, artwork, and other collectibles of value.
The ATOs Stance On Digital Assets
The ATO uses the term cryptocurrency to describe a digital asset where encryption techniques are used to regulate the generation (mining) of additional units and verify transactions on a blockchain.
From the ATOs standpoint, cryptocurrencies are considered assets or property, and they are therefore subject to taxation if capital gains are realized. Cryptocurrencies are not regarded as a form of currency because they are not recognized as legal tender in other parts of the world.
For more information, you can our guide on the taxation of cryptocurrencies in Australia.
Can I Use My SMSF To Invest In Crypto?
Yes, the ATO recognizes digital assets to be a form of investment that can be incorporated into an SMSF. However, several requirements must be met, including:
- The Trust Deed must outline cryptocurrencies as an acceptable form of investment as part of the SMSF.
- The investment strategy must consider and allow the use of cryptocurrencies as a form of investment.
- All Australian legal and regulatory compliances must be met.
Regulations & Legalities Of Cryptocurrency SMSF
All SMSF that incorporate digital currencies such as Bitcoin (BTC) and Ethereum (ETH) must adhere to strict regulatory requirements set out by the ATO. Some of the key requirements are described below.
Taxation Of Crypto SMSF
One of the key advantages of holding a crypto SMSF is the very attractive tax structure. All trustees and members of the cryptocurrency SMSF must be aware of the tax implications.
Since digital currencies such as Bitcoin (BTC) are considered property or assets by the ATO, they will be subject to taxation when a capital gains event is triggered.
A capital gains event is an event where profit is made from the trading of cryptocurrencies as well as increases in their market value over time. Selling crypto and turning a profit will also trigger a capital gains event that must be reported to the ATO.
Alternatively, if cryptocurrencies in an SMSF turn into a loss then they are ineligible to be considered as a tax deduction. Instead, they are considered as the base cost of the digital asset.
If cryptocurrencies are held in your SMSF for a term longer than 12 months then the Capital Gains Tax (CGT) that will be applied is 10%. The concessional tax rate is 15%. This, of course, assumes that your SMSF is compliant with regulatory requirements. This represents a major advantage for SMSF investors as the tax rate is significantly lower than individual tax rates.
If crypto is held for a period of fewer than 12 months, or the fund is non-compliant, then the CGT rate is higher.
The Sole Purpose Test
The sole purpose of cryptocurrency SMSFs is to provide retirement benefits to their members, or their dependents if their members die before retirement. Your SMSF strategy must reflect this approach.
Trustees or any other parties are not permitted to directly or indirectly benefit from cryptocurrency investment decisions other than increasing the return to the SMSF.
A breach of the sole purpose test would comprise the mixing, interaction, or treatment of SMSF-held assets with personal assets. Furthermore, the purchasing of cryptocurrencies must be made using the nominated SMSF. Buying crypto using personal assets and transferring them to the SMSF is a breach of the sole purpose test. Doing so could mean tax ramifications.
Ownership Of Assets
Akin to the sole purpose test where SMSF and personal cryptocurrencies wallets need to be kept separate, you must ensure you can demonstrate the ownership of the digital assets under the SMSF.
Since cryptocurrencies are virtual and are stored in an online digital wallet, it can be difficult for auditors to ascertain who owns the digital assets. To avoid potential issues down the track, strong record-keeping is required.
- A detailed record showing the trading history should be kept and it should match the bank details where AUD is used to purchase cryptocurrencies.
- The Deed of Trust, or a similar document, should confirm that the SMSF is the beneficiary owner of the crypto.
Separation Of Assets
Australian super laws and regulations outline that fund-held assets should be stored separately from personal assets. This means that SMSF assets and personal assets of the trustees and members must be stored and managed under separate funds.
If trustees and members possess digital currencies as personal assets then these must be held under a separate cryptocurrency wallet. This ensures that there can be no discrepancies regarding the ownerships of SMSF assets.
Valuation Of Crypto Assets
It is widely known that the value of cryptocurrencies constantly changes over time. So how do you value your SMSF-held assets?
The ATO has published guidelines for the valuation of SMSF cryptocurrencies. You need to ensure that your cryptocurrency investments are valued in line with these guidelines.
You should aware that cryptocurrencies held in an SMSF will be adjusted to reflect the market value as of 30 June of that financial year. As a general rule, the ATO may accept your valuation of SMSF-held crypto as long as it meets the following:
- The method of valuation does not conflict with the ATO’s guidelines.
- There is no evidence that a different value was used for the same capital gains event.
- The method of valuation was based on objective data that can be demonstrated and evidence provided.
The valuation of cryptocurrencies can become a complicated issue in Australia where the regulatory environment is still establishing itself. Professional advice should be sought to ensure that your legal obligations and responsibilities can be met.
Country Of Residence
To ensure regulatory compliance, the majority of SMSF members must reside in Australia. If this is no longer the case then there may be non-compliance issues present.
What Are The Advantages Of A Cryptocurrency SMSF?
With digital currencies becoming more mainstream and generally rising in value, more Australian investors are allocating a portion of their SMSF to crypto. Here are some of the key benefits of a crypto SMSF.
You Have More Control On Your Investments
An SMSF can be used to acquire investment assets other than cryptocurrencies. As such, you have a wider choice of investment options, including gold, property, artwork, and other collectibles of value.
One of the major advantages of a cryptocurrency SMSF is the ability to choose what digital assets are to be included in the portfolio. If you know how to identify changes or trends in crypto and invest in suitable coins or tokens, then you can potentially increase the value of the SMSF satisfactorily. Alternatively, you will be able to respond to sudden market changes or capitalize on investment opportunities.
Benefit From An Attractive Tax Structure
Like all SMSFs, cryptocurrency SMSF are taxed at a maximum rate of 15%. If the assets are held for more than 12 months, the long-term tax rate is 10%. The passive income generated from assets in a retirement pension fund is not taxed at all, even capital gains tax.
Professional advice should be sought to develop a sound taxation strategy. The key objectives of the strategy would be to minimize the tax paid whilst the value of the SMSF increases.
One of the big unknowns of running your SMSF are ongoing costs. This is often a barrier to entry for most Australians who are considering setting up their SMSF. There is a misconception that SMSF costs are greater in the long term because of the fees associated with obtaining professional advice.
However, this is not the case.
Research conducted by Rainmaker.com.au indicated that gross superannuation fees for retail super funds in Australia have decreased to an average of approximately 1.1%. This is largely due to the increased competition between service providers and the need to provide members with better growth whilst incurring lower fees.
The study also indicated that average fees for small-scale SMSFs were around 0.8%. Although the gap between retail fund costs and SMSF costs is closing, the lower costs of running an SMSF will be appealing to some investors.
But the proportion of costs going to ongoing administration and investment fees is not the only consideration. Typically, fees incurred by retail funds in Australia are based on a percentage of the super fund’s value. This means that the greater value of assets you have, the higher the fees are.
Since most crypto SMSF accounts are done online through a streamlined process, the administration and accounting costs are typically flat or fixed over the life of the SMSF. This results in lower costs incurred over the long term.
In Australia, the initial costs associated with setting up a cryptocurrency SMSF range between $600 and $3,300. Monthly administration or management costs are typically around $120 to $150 and are fixed so they don’t increase with the value of your SMSF or investment type. You may find that there is an ongoing administration fee that is automatically deducted from the balance of your SMSF.
One of the biggest drivers of the ongoing costs associated with managing an SMSF will depend on how much professional support and advice you decide to access.
Generally, creditors are unable to access the cryptocurrencies held in the SMSF. However, if a member of the SMSF has transferred their assets into the fund to escape the creditors, then clawback laws may apply. In this scenario, creditors can potentially access digital assets held in the SMSF.
Disadvantages Of A Crypto SMSF
Despite the advantages and benefits of allocating a portion of an SMSF to cryptocurrencies, they aren’t for everyone. Here are some of the disadvantages that are commonly associated with crypto SMSFs.
The Responsibility Lies With You
SMSFs are all about managing a super fund by yourself. This means that you carry the responsibility of making sound investment decisions for its members.
As a trustee, you need to make sure you have a sound understanding of the crypto market, its trends, and associated risks. Poor investment decisions will hurt the digital assets held in the fund. Your investment decisions may not always bring you the returns you were initially hoping for.
Ensuring Legal Compliance
The legalities surrounding cryptocurrency SMSFs can become complex. Because a crypto SMSF is recognized by the ATO as a legal entity, you need to be aware of relevant legislation and regulatory compliance requirements. This includes taxation, what documents and records are required to be kept and stored, and the implications of the sole purpose test.
If any non-compliances are considered to be present by the ATO, then penalties may be imposed on the trustees who are found to be liable. Serious breaches may result in an increased tax rate of up to 47%.
It Can Be Labour Intensive
A significant amount of time will be required to satisfactorily manage the SMSF in a manner that is compliant with Australian legislative and legal requirements.
Developing and preparing the SMSF strategy can be an intensive process. The strategy needs to address several items including the composition of assets that are likely to be acquired, objectives and funding requirements, the liquidity of the investment, and the potential associated risks.
Throughout the life of the SMSF, significant time and effort will be needed to research suitable investment opportunities, ensure adherence to the overall investment strategy, liaison with any third-party legal or financial professionals, record keeping, accounting, and tax reporting. MoneySmart reports that SMSF trustees may spend on average 8 hours a month managing the SMSF.
The Costs Associated With Crypto SMSFs
Some of the costs associated with the ongoing management and maintenance of an SMSF include the fees incurred to acquire the investment, third-party fees to obtain legal or financial services, and the ATO supervisory levy. To reduce confusion, most SMSF providers will offer you a fixed fee that covers the costs to maintain an SMSF.
- Investment fees: These are the trading fees you will incur as part of buying, trading, or selling digital currencies and assets such as BTC, ETH, and ADA. Since trading fees apply to all trades, the total cost is a function of the percentage fee and the number of trades completed.
- Legal, and financial advice fees: Professional fees from lawyers and financial professionals should you require them.
- Accounting, audit, and taxation fees: Annual fees incurred by third parties as well as your crypto tax obligations.
- ATO supervisory levy: This is a levy fee that is set by the ATO and needs to be paid in advance of the next financial year. During the 2020-2021 financial year, the levy was $259 for existing SMSF accounts and $518 for newly created accounts.
Based on data from the 2018 – 2019 financial year, the annual running costs for an SMSF generally ranged between $3,500 and $10,000. The vast majority of costs associated with managing a crypto SMSF are associated with professional advice and external audits.
Since these costs are flat and not a percentage fee, you will save thousands of dollars as your investment value grows over the long term. So whilst costs are relatively high upfront your SMSF will incur proportionately lower costs across its entire lifetime.
How To Setup A SMSF Cryptocurrency Account With An Exchange
Setting up a cryptocurrency SMSF account via a cryptocurrency exchange is a relatively simple process. This is because some Australian platforms have partnered with professional SMSF service providers to make things easier and streamlined.
The first step is to choose a crypto exchange that supports the creation of SMSF accounts. Key factors that you might look for include low trading fees, an exchange with an outstanding security record, an Over-The-Counter (OTC) desk for large trades, and tax reporting tools.
Creating an SMSF account with a reputable Aussie exchange is typically a streamlined process involving the following four steps.
- Create an SMSF account using logging details that are unique to your personal crypto portfolio (if you have one with that exchange). This is to ensure that regulatory compliance is met by keeping SMSF digital assets separate from your personal portfolio.
- Verify your identity by submitting copies of a government-issued identification document such as your Australian passport or driver’s license. This mandatory process is required to be completed to satisfy Know Your Customer (KYC) procedures that all Australian exchanges are legally required to adhere to.
- Submit the relevant SMSF documents including the 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.
Once approval has been received, you can begin obtaining Bitcoin and altcoins as part of your SMSF investment portfolio.
Best Crypto Platforms in Australia For SMSF Investors In 2023
One of the most important aspects of managing your SMSF is making sure you are compliant with Australian legislative requirements. Non-compliance represents the biggest risk to trustees and members.
Several Aussie crypto exchanges have partnered with SMSF specialist providers to ensure your SMSF remains compliant. Based on our research and reviews, these are the four best crypto exchanges that provide SMSF services in Australia.
- Independent Reserve (best overall SMSF provider)
- Swyftx (best overall Australian exchange)
- CoinSpot (most reputable and secure SMSF provider)
- Digital Surge (great option for beginners)
|Exchange||Assets||Trading Fees||Our Ratings||Learn More||Promotion|
|Independent Reserve||30||0.5%||4.5/5||Visit Independent Reserve Independent Reserve Review||None available at this time|
|Swyftx||312||0.6%||4.8/5||Visit Swyftx Swyftx Review||$20 Free Bitcoin for creating a new account|
|CoinSpot||330+||1%||4.6/5||Visit CoinSpot CoinSpot Review||None available at this time|
|Digital Surge||300+||0.5%||4.7/5||Visit Digital Surge Digital Surge Review||None available at this time|
1. Independent Reserve
Read our complete Independent Reserve Review for an in-depth breakdown of its features and benefits.
Established in 2013, Independent Reserve is one of the oldest cryptocurrency platforms in Australia. Apart from its strong reputation as a reliable point of access to digital assets, Independent Reserve is widely known for its premium SMSF services. Trust and reliability go a long way for Australian investors who are considering allocating a portion of their SMSF to crypto. Independent Reserve has a strong track record of demonstrating this and now holds over 8,000 SMSF accounts.
Independent Reserve offers all the hallmarks of a premium SMSF service including crypto tax reporting tools to assist you with EOFY reporting, low trading fees (0.5%), and a highly secure digital framework so you know your assets are in safe hands. There is also an Over-The-Counter (OTC) desk where you can likely get a better deal if you’re trading over $50,000.
One of the key differentiators the Independent Reserve offers is the ability for you to apply Dollar-Cost-Averaging (DCA) and advanced limit orders to your trades. Instead of buying crypto at the given market price on a particular day, DCA and limit orders provide you with a great deal of flexibility and control.
For example, using DCA lets you obtain digital assets whilst minimizing the effects of volatile price changes. Some limit orders will automatically execute a trade when the market price hits your desired price.
Read our complete Swyftx Review for an in-depth breakdown of its features and benefits.
Swyftx has partnered with New Brighton Capital, an Australian superannuation service provider, to provide its customers with a compliant and easy-to-use SMSF service.
Using AUD to obtain cryptocurrencies on the Swyftx platform is probably one of the most enjoyable experiences on our list. This is largely due to the visually pleasing and intuitive interface but also the customizable dashboard that makes tracking your SMSF investment simple.
Swyftx offers over 310 digital assets to choose from. However, if you want to quickly diversify your portfolio then you consider purchasing the crypto bundles on offer. Because multiple assets are bought in a single transaction, it means that you’re incurring fewer trading fees as opposed to buying them individually.
Other benefits Swyftx provides SMSF investors include:
- Low trading fees (0.6%) and tight spreads.
- In-built cryptocurrency taxation reporting tools to produce clear and succinct tax reports to inform end-of-financial year reporting.
- Crypto staking where you earn rewards of up to 20% RPY on your investment holdings.
- A Brisbane-based customer support team consisting of 35 individuals that can be reached via email, live chat, or phone.
Read our complete CoinSpot Review for an in-depth breakdown of its features and benefits.
Like Independent Reserve, CoinSpot has been around since 2013 and has forged itself a reputation centered on the back of its high level of security and compliance.
Of the four Aussie exchanges we have listed, CoinSpot has gone a step further by achieving ISO 27001 certification from the International Organisation for Standardisation. This means that CoinSpot adheres to strict requirements for its information security systems. On top of this, its digital framework is designed to mitigate against breaches of security leading to the loss or theft of cryptocurrencies.
SMSF investors will benefit from the local customer support team including access to a fund manager, crypto tax reporting tools, an OTC desk for high-volume trading, and the ability to swap coins for other coins.
One thing to be mindful of is that CoinSpot Instant Buy & Sell function comes with a hefty 1% fee. To ensure you get the best value for your long-term investment, you will need to buy crypto using the market orders which carry a lower fee of 0.1%.
4. Digital Surge
Read our complete Digital Surge Review for an in-depth breakdown of its features and benefits.
Digital Surge is a trusted and secures digital asset platform where Australians can easily obtain Bitcoin and over 300 altcoins using AUD. Features that are beneficial to SMSF investors include:
- A streamlined SMSF account creation process and local customer support to assist with onboarding.
- Low trading fees that start at 0.5% and can be reduced depending on the trade volume.
- DCA and advanced limit orders to minimize risk.
- One of the largest selections of cryptocurrencies in Australia with over 300 assets to choose from.
Digital currencies such as Bitcoin can be purchased to serve as long-term investments in SMSFs. The popularity of crypto SMSFs has grown parallel to cryptocurrencies becoming more mainstream and accessible by everyday Australians. Making sure your SMSF is compliant with regulatory requirements is the most important aspect of any crypto SMSF as non-compliance represents the biggest risk.
With the increasing demand for crypto SMSF services, reputable Australian crypto exchanges such as Independent Reserve have partnered with professional SMSF providers to ensure their customers have access to such services. The major advantage of this is that crypto investment purchases are directly transferred to your SMSF wallet. In addition, exchanges now also offer crypto tax reporting to assist you with your financial year reporting.
Frequently Asked Questions
Are The Setup Costs For My SMSF Tax Deductible?
No, any costs associated with setting up your SMSF are not tax-deductible because they are considered capital costs. Additionally, your SMSF is not considered a business and so these costs cannot be expensed or brought forward. However, update costs can be considered a tax deduction.
Can I Use My SMSF To Stake Crypto?
Yes, staking cryptocurrencies held by the SMSF can potentially be undertaken. Staking digital currencies such as Ethereum (ETH), Solana (SOL), or Shiba Inu (SHIB) is a sound way of earning a passive income on idle crypto holdings. All profits generated from staking need to be paid to the SMSF. Staking rewards paid to unrelated parties is likely to be non-compliant with the sole purpose test.