Cryptocurrency SMSF – A Complete Guide

Cryptocurrency SMSF – A Complete Guide

Robert McDougall

November 24, 2022

Cryptocurrency

Everyone is talking about cryptocurrency these days, and you may have heard that Bitcoin's gains in the last decade have made it the best-performing asset by 1,000%. Bitcoin's annualised returns of 230% are more than 10x higher than the second-ranked asset class - the NASDAQ 100 Index. If you are thinking of growing your long-term wealth and securing your financial future, you may have considered using cryptocurrency as part of a SMSF (self-managed super fund) to minimise tax and maximise returns. But how do you set up a SMSF and is it right for your personal circumstances? I hope you will find this article information and help clear up any questions you have.

What is a SMSF?

Let's start with the basics. What is a SMSF (self-managed super fund)? A SMSF is a private super fund that you are in control of. You and your members (maximum 6 total) are trustees responsible for the fund, and choose the investments (such as cryptocurrency) and the insurance. You and your members run the SMSF for your own benefit and are responsible for complying with the super and tax laws.

Our Top Recommended Crypto SMSF Providers

#1

CoinSpot

   Best Overall - Most Secure 

Rating

4.9

#2

Swyftx

Best for Demo Mode

Rating

4.6

Advantages of a Cryptocurrency SMSF

There are many benefits or running a cryptocurrency SMSF. I will cover these briefly below:

Choose your own investments, such as cryptocurrency

This is the biggest advantage, and the main reason you want to set up a Crypto SMSF. If you are interested in other obscure investments, such as artwork, collectables and physical gold, you can also use these in an SMSF. You do however, need to ensure that you meet certain strict criteria to ensure the SMSF is legally compliant. 

For example, your cryptocurrency needs to be held completely separately from personal assets. You need to have an account that is opened under the SMSF fund and not your personal name. CoinSpot and Swyftx are two excellent Australian crypto exchanges that offer this option.

Another point to note, is that the cryptocurrency exchange you choose for your SMSF must be an Australian exchange. This is due to the complex nature of accessing relevant data from an overseas exchange, and also the fact that many won't recognise SMSF investors, and therefore cannot open an account in the SMSF fund name. To check out a list of the best Australian crypto exchanges, click here.

Flexibility and control of your fund

Because your SMSF members are the trustees, they have the option to choose the rules of the fund for what they need. With a regular industry or retail super fund, this is simply not possible.

Being in charge of your own investments means you can easily switch crypto assets when the market changes, or if you see a better opportunity. For example, if your SMSF is investing mainly in BTC, you can quickly adjust to buy ETH, if you notice a bull run starting to happen. 

Lower taxes

If you are wondering why you should use a cryptocurrency SMSF instead of simply investing in crypto as an individual, one of the big benefits is that you receive lower tax rates. As a SMSF, the tax is only 15%, which is the same as for retail and industry funds, and another advantage of the SMSF is that you can use tax strategies that work best for your personal circumstances.

Costs

Many people don't even consider setting up a SMSF because they have the idea that it is too expensive to set up, with continuous compliance fees. While that was the case years ago, nowadays they are much more accessible due to increased competition between service providers. The costs of running your SMSF will depend on how much professional support you decide to access.

Many of the costs to run a SMSF are fixed, which means if you have a low super balance, it will not be worthwhile, as your fees are taking up a large portion of your investment. However, if you have a larger balance, or if you combine your super with others, you could enjoy lower fees than if you used a regular super fund, which charges fees based on a percentage of your total balance.

Protect your assets including crypto from creditors

If you find yourself owing money to a bank, your assets, such as your cryptocurrency are safe if they are part of your SMSF. Creditors are not usually able to access your superannuation, unless you purposely moved your assets into your SMSF to avoid paying your debt.

Disadvantages and Risks of a Cryptocurrency SMSF

While there are many advantages of setting up your own cryptocurrency SMSF, there are also some negatives to take into account. Make sure you are aware of the risks before deciding to set up a crypto SMSF, and speak with a financial advisor and a tax agent for professional advice. Some of the points to consider are as follows:

Manage your own investments

Since you are managing your own super, you need to make sure you have the competence to make wise investment choices, otherwise you could seriously negatively impact your retirement savings, as well as that of the other members. Remember that cryptocurrency is a risky financial asset, and past performance is not an indication of future performance. Although Bitcoin averaged over 200% annualised return over the last decade, there is no guarantee this will continue in the next 10 years. You need to make sure you have investment expertise before risking your retirement savings, and remember to diversify your portfolio, don't put it all into cryptocurrency.

Trustee responsibilities

You need to be aware of all the relevant legislation and compliance that you must adhere to. If the ATO finds that your SMSF has breached any rules, they can impose high penalties on trustees who will be held personally liable.

You are in charge of managing your fund even if difficult circumstances arise, such as losing your job, relationship breakdown between members, or if a trustee passes away.

Also if you lose money by way of theft or fraud, you won't be able to access any special compensation schemes or the Australian Financial Complaints Authority (AFCA).

Takes time and money

You will need to invest lots of time and money into setting up and running a crypto SMSF, even with the help of a professional. You have to research investments, set and follow strategies, keep records, manage accounting and arrange audits. You will also need to pay for ongoing costs, such as investing, accounting, auditing, tax advice, legal advice and financial advice. It is said that a general rule for a SMSF to be worthwhile is if you have over $250,000 of assets in the fund. Remember most of the costs of a SMSF are fixed, unlike a traditional super fund which charges a percentage fee, so the more you have in your SMSF balance, the more beneficial it is to run.

Must reside in Australia

For your SMSF to comply with Australian legislation, most of the members need to live permanently in Australia. If you are thinking of moving overseas or want to make super contributions while you are living overseas this could breach the rules.

What's involved with a SMSF?

Here's a short video from the ATO which summarises what's involved with setting up and managing a SMSF, to help you decide if it's suitable for you.

Setting up a Cryptocurrency SMSF

If you have decided that you want to set up a SMSF, you can read the resources available from the ATO. After you have set up your SMSF, you need to decide which cryptocurrency exchange to use to invest in crypto. Remember, the exchange has to be Australian to meet tax reporting obligations (see our list here for best exchanges in Australia).

Which cryptocurrency exchange to use for SMSF?

In the table below are the two highest-rated Australian exchanges for cryptocurrency SMSFs. 

CoinSpot (read review) is our #1 choice of cryptocurrency exchange for a SMSF. It has excellent security, complete with ISO 27001 certification, making it the most audited and trusted exchange in Australia. There are over 370+ different cryptocurrencies on offer, so your SMSF can easily diversify among a range of coins, and you can also earn interest on 21 coins. The fees are 1% but you can access lower fees of just 0.1% if you trade on the market, or use the OTC desk. Live Chat customer support is on hand 24/7 whenever you need help.

Swyftx (see full review) offers over 320+ coins, free deposit and withdrawals into the account, and some of the lowest spreads found in Australia. The trading fees are just 0.6%, and there is even a Demo account where you can test out different investment strategies using virtual money. If you require any assistance, there is Live Chat support at the ready. Swyftx also allows users to earn crypto interest on 20 coins.

Top 2 Recommendations for Cryptocurrency SMSF

Best Overall
9.9

✔️ Australia's most popular crypto exchange (over 2.5 million Aussies)

✔️ Highly trusted (est. 2013), AUSTRAC registered & ISO 27001 certificate

✔️ Large range of 370+ cryptocurrencies and staking on 21 coins

✔️ OTC trades for large trades with low fees of 0.1% and minimal slippage

Demo Mode
9.7

✔️ Well-designed platform with access to over 320+ different coins

✔️ Average fee including spread: 1.11% as per our test results

✔️ Unique Demo mode - practice trading risk-free with play money

✔️ Best value right now with free $20 BTC, performed remarkably well in our test

Can I Move my Crypto Out of the Exchange?

You can send your crypto into a hardware wallet for long-term safe storage. Read about the best crypto wallets, such as Ledger or Trezor to determine which is best for you. 

Some people are moving their cryptocurrency from their SMSF into liquidity pools, which is not suitable. At the end of each financial year, your SMSF is audited, and you need accurate documentation about where your funds are. This is why it is important to choose a crypto exchange that is built specifically for SMSFs and works closely with tax tools such as cointracker.io.

CoinSpot has excellent EOFY accounting capabilities and plugins that make it easy for you to report when tax time rolls around, and this is one of the reasons we choose it as our #1 SMSF crypto exchange.

Investing in Cryptocurrency Without a SMSF

If you decide that a cryptocurrency SMSF isn't suitable for your needs, it doesn't mean that you cannot still invest in crypto and grow your wealth for the future. You can use any of the best crypto exchanges for Aussies to buy and hold some digital assets, and you can even earn passive income on your crypto. An easy way to grow your cryptocurrency holdings is by staking your crypto, such as ADA (Cardano) which will accumulate greatly in the long-term.

Marketplacefairness.org provides all its content for informational purposes only, and this should not be taken as financial advice to buy, trade or sell cryptocurrency or use any specific exchange. Please do not use this website as investment advice, financial advice or legal advice, and each individual's needs may vary from that of the author. This post includes affiliate links with our partners who may compensate us. 

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