SMSF Investment in Cryptocurrencies: A Beginners Guide

SMSFs or Self Managed Super Funds, are growing in popularity as a sound investment structure, especially for cryptocurrencies. In Australia, there are nearly 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, a staggering portion of the nearly 3.3 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. SMSF-eligible investors can use the Swyftx exchange to make cryptocurrencies like Bitcoin become a part of their SMSF retirement investment portfolio. 

Visit our cryptocurrency SMSF page to start investing your self managed super fund into Bitcoin, Ethereum, Solana, Polkadot and other digital assets.

What are SMSFs?

Self Managed Super Funds (SMSFs) are a type of retirement account that allows 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, Ethereum and many more 
• 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 table below shows how cryptocurrencies are taxed for typical investors. 

Income Level	Tax Owed on Income
$0 to $18,200	Nothing
$18,201 to $45,000	19 cents for each $1 if total is over$18,200
$45,001 to $120,000	$5,092 plus 32.5c for each $1 if total is over $45,000
$120,001 to $180,000	$29,467 plus 37c for each $1 if total is over $120,000
$180,001 and over	$51,667 plus 45c for each $1 if total is over $180,000

SMSF Taxes

SMSFs give special privileges 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 (CGT) 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 are assessable for taxes include contributions, interest, dividends, and rent. Of course, cryptocurrency is assessable as well. 

SMSF Regulations 

The most pressing and critical tax laws that SMSFs must follow are that of the Superannuation Industry (Supervision) Atc.

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 SMSF 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 

Furthermore, the SMSF must be maintained solely for the purpose of retirement-funding. That means crypto assets in a SMSF cannot be used as part of a trading strategy.

In regards to cryptocurrency, the fund’s trust deed must also allow for the purchase if digital assets are going to be incorporated into the fund.

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.

Pros and cons of SMSFs

Pros 

While SMSFs offer a favourable tax rate for complying funds, there are other benefits that include: 

1. 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. 
2. Adding cryptocurrency to your retirement plan: an SMSF is a great vehicle for including cryptocurrencies in your retirement portfolio. 

Cons 

Although the tax rate could be favourable, and despite the opportunity, SMSFs deliver in allowing cryptocurrency to be included in a retirement portfolio, SMSFs definitely come with some cons: 

1. Costs: There are added costs associated with SMSFs. 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 know what you’re doing in order to maximize your returns and minimize your chance of being hit with penalties for things like non-compliance. 
2. 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. 
3. 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.

How to invest in cryptocurrency through your SMSF 

You can now set up an SMSF using Swyftx. 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:

1. Open an account on the secure online portal 
2. Open a bank account
3. Direct your super into your new SMSF 
4. Set up a new trading account 
5. 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.

Additionally, what will typically be required is ID for all the beneficial owners, Proof TRUST ABN or CAN, and the bank details of the Trust.

Is my cryptocurrency secure in a SMSF?

SMSFs will typically have larger amounts stored in them, so ensuring they are secure is a top priority.

Consider the following when it comes to your cryptocurrency wallet. Create a backup of your wallet key that can be stored offline, should you lose it. Also ensure that your password itself is unique and not the same as the password you use for other accounts (i.e. email).

Swyftx has a robust security framework to ensure the security of customer assets, alongside the highest standard of industry storage protocols.

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.

Is investing in cryptocurrency for my SMSF right for me?

Only you (or a financial advisor) can ultimately answer this.

However, Australia has been actively participating in the digital currency revolution, with legislation and regulation of digital currency exchanges. The worldwide market capitalization is expanding.

While no financial product is without risk, bitcoin and other cryptocurrencies are one more alternative for diversifying your SMSF investments that you may take advantage of now.