A Brief Overview of Self Managed Super Funds and Cryptocurrencies
SMSFs are growing in popularity as a sound investment structure, especially for cryptocurrencies. In Australia, there are over 600,000 SMSFs that have a combined total of 1.1 million members (5% of the country). SMSFs account for a staggering $676 billion dollars, which equates to 25% of the nearly 2.7 trillion dollars invested in supers. As cryptocurrencies like Bitcoin increase in popularity, savvy investors are searching for ways to expose their portfolio to Bitcoin without paying exorbitant tax rates.
Now SWYFTX is allowing crypto enthusiasts to use our exchange to help you grow your retirement with cryptocurrencies. Thanks to a partnership with the team at New Brighton Capital, SMSF-eligible investors can use the SWYFTX exchange to make cryptocurrencies like Bitcoin become a part of their SMSF retirement investment portfolio. Even better, we will be giving anyone $250 in crypto credit after they set up an SMSF with New Brighton Capital.
What are SMSFs?
Self Managed Super Funds (SMSFs) are a type of retirement account that affords certain benefits and tax privileges to its members. SMSFs may have up to four members who are family or friends. As a member of the fund, you and any fellow member are the fund’s trustees. You are all responsible for maintaining a pulse on the latest information.
SMSF fund members are not allowed to be an employee of another fund member, however, relatives are an exception to this rule.
SMSFs are the only type of retirement account that can include cryptocurrencies.
Types of Assets included in an SMSF
Unlike retail and industry supers, a Self Managed Super Fund allows individuals to have more autonomy over the assets in their portfolio. Investment decisions are left up to the members of the fund and not some broker that is allocating funds on your behalf. As such, SMSF members are allowed the utmost freedom in choosing what they want in their investment.
Assets that can be allocated to a Self Managed Super Fund include:
- Cryptocurrencies and digital assets such as Bitcoin, Litecoin, and Ethereum
- Collectables such as wine and art
- Both listed and unlisted Australian and international shares
- Fixed income products
- Commercial and residential property
- Any term or cash deposits
Benefits of an SMSF
There are several benefits when it comes to SMSFs such as tax rates and the variety of assets that can be included. Taxes on cryptocurrency that is not held in an SMSF could potentially range from 15% to an upwards of 45%. The chart below shows how cryptocurrencies are taxed for typical investors under the Capital Gains Tax.
|Income Level||Percentage Rate||Tax Owed on Income|
|$0 to $18,200||0%||Nothing|
|$18,201 to $37,000||19%||19 cents for each $1 if total is over$18,200|
|$37,001 to $90,000||32.5%||3,572 plus 32.5% if total is over $37,000|
|$90,001 to $180,000||37%||$20,797 plus 37% if total is over $90,000|
|$108,001 and over||45%||$54,097 plus 45% if total is over $180,000|
Source: Australia Tax Office
SMSFs give special privilege to investors who want to include cryptocurrencies like Bitcoin and Ethereum as a part of a retirement investment strategy. SMSFs that include cryptocurrencies are eligible for the tax rate of 15%, which is significantly lower than what investors usually pay on cryptocurrencies as subject to the standard Capital Gains Tax rate. However, in order to qualify for the SMSF tax rate, the SMSF must be in compliance with all ATO guidelines as well as other rules that we’ll discuss more in the section on regulation.
Common types of income that is assessable for taxes includes contributions, interest, dividends, and rent. Of course, cryptocurrency is assessable as well.
SMSFs vs. Family Trust for Cryptocurrency
Family trusts are a go-to investment vehicle for families who seek flexibility in holding personal assets (e.g., a beach house or winter cabin). Compared to SMSFs, family trusts typically have fewer rules to comply with. Family trusts may also distribute benefits annually, and family trusts are not limited to only 4 members. However, there is one big difference that cryptocurrency enthusiasts may find difficult to grapple with when it comes to family trusts: you can’t include cryptocurrency in a family trust.
Several regulations should be considered when dealing with cryptocurrencies and SMSFs. Since the ATO oversees super funds, all cryptocurrency SMSF members should be aware of any existing ATO laws regarding not only cryptocurrency, but also supers. All fund members should be aware of any changes and information related to tax and cryptocurrency laws.
Members must also be in compliance with SISA and SISR guidelines in regard to restrictions on any investment strategy.
Current compliance requirements include:
- Only remitting super benefit payments to members who have met release conditions
- Appointment of a registered auditor
- Submitting the fund’s annual return information to the ATO
- Paying annual taxes
- Accurate administrative reporting and record-keeping for items like a bank account
- Relevant information for tax returns for the year beginning 1 July and ending on 30 June are submitted on time unless an extension has been granted
- Accepting contributions only from other members in the fund
- Accurate reporting and record keeping on cryptocurrencies
- Member insurance information is considered
Sole Purpose Test
All SMSFs must comply with the sole purpose test in order to be eligible for tax concessions at the 15% tax rate. The sole purpose test basically means that your funds need to be maintained for the sole purpose of providing retirement benefits to your members, not benefiting your current lifestyle. The funds cannot be used for your benefit now as you’re actively contributing to it below the pension age. Non-compliance with the sole purpose test will result in higher tax rates, as well as potential civil and criminal penalties for fund members. More information about the test can be found here.
While SMSFs offer a favorable tax rate for complying funds, there are other benefits that include:
- Investing with friends and family: Sometimes investing can be scary when doing it alone. You are one person taking on a mountain of risk. Adding family members or friends not only mitigates the risk, but forms a community around the common good of increasing your retirement funds.
- Adding Cryptocurrency to your Retirement Plan: Ok, we’re a bit biased when it comes to crypto (we love it), so we are beyond excited to have an investment vehicle that allows us and other cryptocurrency enthusiasts to include cryptocurrencies in retirement portfolios.
Although the tax rate could be favorable, and despite the opportunity SMSFs deliver in allowing cryptocurrency to be included in a retirement portfolio, SMSFs definitely come with some cons:
- Costs: One of the worst parts about SMSFs are the added costs. Although costs will change from one fund to the next, costs such as accounting, auditing, taxes, legal fees, and financial advice all add up to take away from your bottom line. SMSFs can be tricky as they come with a lot of legal red tape. You need to be an expert or surround yourself with experts in order to maximize your returns and minimize your chance of being hit with penalties for things like non-compliance.
- Liability: Even if you decide to use outside help like a tax preparer or financial advisor, you and your fellow fund members are responsible for maintaining compliance. It doesn’t matter who helped you, at the end of the day, a Self Managed Super Fund falls on the members, hence the word ‘Self’ in the title.
- Status of Fund and Compliance: The compliance status of a fund may change if you switch away from a professionally managed fund, or if there are changes to a member’s health. Keep up to date with all of the correct information about your fellow fund members, as well as information put out by the ATO.
Frequently Asked Questions
How to get cryptocurrency in an SMSF?
You can now set up an SMSF using SWYFTX with the help of our exclusive SMSF partners at New Brighton Capital. Once the paperwork is filled out with related information, and the ATO approves the super, there are additional steps that investors will have to take.
Those steps include:
- Open an account on the secure online portal
- Open a bank account
- Direct your super into your new SMSF
- Set up a new trading account
- Set up data feeds
The SMSF will also need to include a trust deed. The trust deed of an SMSF includes the governing rules of the super fund and its trustees. The main job of the trust deed is to specifically list obligations, and define the terms and conditions of the trust.
More information on opening an SMSF account on our partners site New Brighton Capital here.
Is it legal to have cryptocurrency in my SMSF?
Yes, it is 100% legal to include cryptocurrency in your retirement portfolio through an SMSF account. Unlike industry and retail supers, SMSFs are the only type of retirement account that can include cryptocurrency.