Investing in Crypto with Your Self-Managed Super Fund (SMSF)

Over the past decade cryptocurrencies have emerged from a speculative niche to being the world's fastest growing asset class. Today, crypto assets like Bitcoin (BTC), Ethereum (ETH), and others have gained mainstream acceptance and are being considered by many as a legitimate part of a diversified investment portfolio. Recognising the potential of the crypto market, many Australians with Self-Managed Super Funds (SMSF) are actively seeking avenues to invest in this dynamic space. In this guide, we aim to demystify the realm of SMSF-based crypto investments, and showcase how platforms like Coinstash can help your SMSF gain exposure to crypto-assets.

What is a Self-Managed Super Fund (SMSF)?

Understanding SMSFs

A Self-Managed Super Fund (SMSF) is a special entity that allows Australians to directly manage and invest their superannuation. Unlike traditional industry or retail super funds managed by investment professionals, an SMSF gives individuals the autonomy (and responsibility) to oversee their superannuation savings personally. This level of control and flexibility attracts many investors who want greater control of their retirement savings and to explore alternative investment options like cryptocurrencies.

Can SMSFs Invest in Bitcoin & Cryptocurrency?

Yes - SMSFs can invest in cryptocurrency! However, it does require careful consideration of both the superannuation laws and your compliance obligations.

The current stance of the ATO is that crypto assets are a valid investment choice for SMSFs, on condition that:

• They are permitted under the SMSF fund’s trust deed.
• They comply with the fund’s investment strategy.
• They comply with the applicable superannuation laws, as is required of all SMSF investments, set forth in the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).

Importantly, all SMSFs must be registered with the ATO, have an Australian Business Number (ABN) and a Tax File Number (TFN). They must also have a separate bank account for its transactions.

How to set up an SMSF for Cryptocurrency Investments?

If you are considering investing in crypto through your SMSF, there are certain steps you must take to ensure you can do so. 

1) Consult Your Financial Adviser

Before diving in, it’s crucial to begin by discussing your plans with a financial advisor. This is important whether you’re setting up an SMSF for the first time or evaluating your current SMSF's capacity to invest in crypto. A financial adviser can provide tailored advice, ensuring your investment strategy aligns with your investment goals, risk tolerence, and complies with regulatory requirements.

2) Establish Your SMSF

If you are setting up an SMSF for the first time, it's essential to understand that this process involves several crucial steps. While it's possible to manage this independently, many find it beneficial to enlist the help of professionals who specialise in SMSF establishment. These experts can guide you through the complexities of creating an SMSF, ensuring that your fund is set up correctly and complies with all the legal requirements.

3) Review and Update Your SMSF Trust Deed

After consulting with your financial adviser and establishing your SMSF, the next critical step is to review your SMSF Trust Deed. This is crucial whether you are setting up a new SMSF or have an existing one. The Trust Deed is the foundation of your fund, outlining its structure and investment rules.

If you’re creating a new SMSF, ensure that the deed drafted by professionals includes provisions for cryptocurrency investments. For those with an existing SMSF, check if your current deed already covers such investments. If it's outdated or doesn’t explicitly allow for crypto investments, you'll need to update it. Most modern Trust Deeds are designed to be broad enough to to cover investments like crypto, but here’s what to check:

• Sole Purpose Test: The deed should clearly outline the sole purpose of your SMSF, which is to provide retirement benefits to its members.
• Trustee Details: It needs to identify the trustees, their powers, and confirm they have been appointed in line with the SIS Act and Regulations. Trustees must always act in the best interests of the SMSF members.
• Member Consent and Responsibilities: All trustees and directors are required to provide written consent and sign a Trustee declaration, acknowledging their duties within 21 days of their appointment. The deed should list the members of the SMSF, outline the process for adding new members, and define their rights and responsibilities.
• Cryptocurrency Clause: Lastly, ensure the deed specifically permits cryptocurrency investments, either explicitly or under a broad investment clause.

4) Include Cryptocurrency in Your SMSF Investment Strategy

The next step is to develop a clear investment strategy. This strategy must include cryptocurrency as part of the planned assets and align with your SMSF’s overall investment goals and risk profile. It's essential to ensure this strategy is documented, reflecting how crypto investments fit into the broader portfolio.

The SMSF's investment strategy must be a living document, subject to at least an annual review and updated as necessary to reflect changing market conditions or shifts in members' investment goals and risk appetites. This is particularly relevant when considering the diverse needs of different members.

5) Register Your SMSF

To start your Self-Managed Super Fund (SMSF), you need to officially register it with the Australian Taxation Office (ATO). If your SMSF is managed by a company (corporate trustee), you'll also need to register with the Australian Securities and Investments Commission (ASIC).

There are several important steps in this process:

1) Sign the Trust Deed: This document needs to be signed by hand to officially set up your SMSF.

2) Register with the ATO: After your fund is set up and the trustees are chosen, your SMSF must be registered with the ATO and have applied for an Australian Business Number (ABN) within 60 days. Don't forget to:

• Get a Tax File Number (TFN) for your SMSF.
• Choose to have your fund to be an ATO-regulated SMSF - as this allows you to get tax concessions and claim deductions.

3) Appoint an Auditor: You must choose an approved auditor to check your SMSFs finances. This needs to be done 45 days before you file your SMSF's annual return. The auditor should be independent and registered with ASIC. You can find one through the ASIC SMSF auditor register.

It's a good idea to work with an accountant during this process to make sure everything is done correctly.

6) Open a Bank Account for Your SMSF

To manage your SMSF fund, you need to open a bank account in the name of the SMSF. This account will be used to handle the fund's operations, including receiving contributions, super rollovers, and income from investments.

It's essential to select a reliable bank that offers services specifically for SMSF entities. This ensures that the account setup aligns with SMSF requirements.

A separate bank account for the SMSF is crucial. It keeps the SMSF’s funds distinct from the personal accounts of its members, maintaining clear financial boundaries.

7) Select a Reputable Australian Cryptocurrency Exchange

Once your Crypto SMSF is fully established, the next step is to pick the right crypto exchange. This decision is crucial for managing your SMSF's crypto investments effectively. When selecting a digital currency exchange for your SMSF, consider these key factors:

• Australian Based: The exchange should be based in Australia.
• AUSTRAC Registered: Ensure the exchange is registered with AUSTRAC.
• SMSF Account Support: The exchange should offer specific account types for SMSFs.
• Tax Reporting Features: Look for comprehensive transaction reporting capabilities and integrations with crypto tax software providers, facilitating end-of-year financial assessments.

When registering your account on an exchange, it’s important to do so as an SMSF to adhere to the sole purpose test. You will also need to provide relevant documents, such as your SMSF deed and personal ID. 

Coinstash sets itself apart in the Australian market with its dedicated SMSF services. Being an AUSTRAC-registered platform, it guarantees adherence to regulatory standards and offers bespoke account options designed for SMSFs. Coinstash facilitates easy management of tax and audit responsibilities, thanks to its integration with top-tier tax software providers like Syla and Koinly. This makes it a preferred platform for Australian SMSF investors looking to venture into cryptocurrency investments with their super funds.

8) Store Your Crypto Assets Securely

Ensuring the secure storage of your SMSFs crypto assets is paramount. There are various options available for storing cryptocurrencies in your SMSF, such as keeping them on a trusted exchange like Coinstash, or using a digital wallet or offline hardware wallet.

If you choose to store crypto on an exchange, it's vital to ensure that these assets remain distinctly separate from any personal holdings. Using a dedicated exchange account specifically for your SMSF is essential. This segregation is not only necessary for organisational purposes but also critical for compliance and audit transparency. It is also recommended to implement strict security measures, including multi-factor authentication and regular backups, to protect your SMSF assets from potential hacking and theft.

If you opt for a wallet, it's recommended to use an external hardware wallet over a digital warm wallet, as keeping your assets offline in cold storage offers enhanced security. Additionally, it's important to maintain clear documentation for SMSF audit purposes. Make sure any hardware wallet purchases are invoiced to the SMSF and keep a copy of this tax invoice. It's crucial to use this wallet exclusively for the SMSFs assets, without mixing in any personal investments.

What are the Tax Implications of Investing in Cryptocurrency with an SMSF?

ATO Rules and Guidelines for Crypto SMSFs in Australia

The Australian Taxation Office (ATO) has specific rules and guidelines regarding the tax treatment of investments in Bitcoin and other cryptocurrencies in SMSFs. SMSF trustees must ensure accurate tax reporting, including declaring income earned from crypto trades and capital gains or losses incurred. It is essential to consult with tax professionals who specialise in cryptocurrency taxation to ensure compliance with super and tax laws.

Taxation of Capital Gains and Losses

Cryptocurrency within your SMSF is considered a Capital Gains Tax (CGT) asset. This means that any sale or swap of a coin or token typically leads to a capital gain. If you sell your cryptocurrencies at a profit, the capital gain will be included in the SMSF's assessable income and taxed at the applicable tax rate. On the other hand, if you sell your cryptocurrencies at a loss, the capital loss can be used to offset capital gains from other SMSF investments or carried forward to future years.

Here's what you need to know about how crypto is taxed in an SMSF:

• The standard tax rate for SMSFs is 15% on all income, including money made from selling crypto.
• If your SMSF holds a crypto asset for more than a year and then sells it, you can get a third off the CGT. So, instead of 15%, it's taxed at 10%.
• For assets held less than a year, the full 15% tax rate applies.

Understanding SMSF Tax Reporting and Compliance

Compliance with SMSF tax reporting requirements is crucial when investing in crypto. SMSF trustees must keep accurate records of all cryptocurrency transactions, including the date of acquisition, sale price, and any associated expenses. These records are necessary for tax reporting purposes and may be requested during an audit. Failure to comply with tax reporting obligations can result in penalties or even the loss of the SMSF's complying status.

To ensure compliance with SMSF regulations, it is essential to stay informed about the ATO rules and guidelines concerning crypto investments. The ATO has specific requirements for SMSFs investing in cryptocurrencies, such as ensuring separation of personal assets from fund assets and maintaining accurate records of all transactions. Regular auditing of the SMSF's financial statements is also necessary to meet compliance standards.

For SMSFs holding digital assets, it is necessary to ascertain the fair market value of these assets as of June 30 each financial year. This valuation is an important requirement for annual reporting. This can be achieved by using a cryptocurrency exchange that provides historical pricing data. The crucial figure needed is the cryptocurrency's closing price on June 30. This value is then reported in the SMSF tax return, under item 15c, to accurately reflect the market value of the cryptocurrency assets at the end of the financial year.

What Cryptocurrencies Can You Include in Your SMSF portfolio?

When considering what assets to include in your SMSF's cryptocurrency portfolio, the options are vast and varied. Popular choices like Bitcoin (BTC) and Ethereum (ETH) often come to mind first, but there's a whole world of digital assets available for your cryptocurrency SMSF. From well-established coins like Ripple (XRP) and Litecoin (LTC) to emerging tokens and altcoins, the choices are diverse. It's important to research and understand each coin's market performance and potential before including it in your SMSF. Remember, investing in cryptocurrencies through an SMSF requires adherence to ATO regulations and a well-crafted investment strategy.

Considerations & Tips for Investing in Crypto With Your SMSF

Choose a Reliable Digital Currency Exchange for Your SMSF

Selecting a reputable digital currency exchange is essential when investing with your SMSF. Consider factors such as security measures, user interface, customer support, and the range of cryptocurrencies available for trading. It is also advisable to compare transaction fees and withdrawal limits to ensure they align with your SMSF's strategy and investment objectives.

Work with a Professional SMSF Auditor and Advisor

Engaging the services of a professional SMSF auditor and a financial advisor is highly recommended when investing in crypto with your SMSF. These experts can help you navigate the complexities of SMSF regulations, tax reporting obligations, and compliance requirements. They can help ensure the overall success of your SMSF crypto investments and ensure the SMSF remains compliant.

How to Set Up a Crypto SMSF Account on an Exchange?

Setting up a SMSF account on Coinstash is simple and straightforward, making it a great option for investors looking to manage their SMSF on a specialised crypto platform. To get started, you will need to complete a detailed account registration form on the Coinstash platform, with important details such as your personal information and SMSF trust deed. Following this, the next step is to book a consultation with one of our experts. They will then guide you through the process, ensuring you understand the intricacies of crypto investment in an SMSF, and that your account aligns with both your objectives and regulatory requirements.

Easily Manage Your Crypto SMSF with Coinstash

When setting up a crypto SMSF account, Coinstash stands out as the premier choice for Australian investors. With its seamless integration with many leading tax software providers and user-friendly interface, Coinstash provides an unparalleled experience in managing crypto SMSF accounts. Renowned for its robust security measures and adherence to regulatory standards, Coinstash ensures your investments are both safe and compliant with ATO guidelines.

Our platform offers access to a wide range of over 1,000+ coins, coupled with detailed reporting features, making it an ideal solution for those looking to diversify their SMSF with digital assets. Whether you're a seasoned investor or new to the world of crypto, Coinstash's dedicated expert support make it the go-to option for easily setting up and managing your crypto SMSF account.

Click here to book a consultation with one of our SMSF experts!

Frequently Asked Questions