Want to get crypto into your pension pot and reap the tax benefits? Well, it’s all possible with what’s known as a crypto SMSF - or crypto Self Managed Super Fund. But a word of caution - the ATO has very specific rules around managing SMSFs, so you’ll need to know how they work in-depth or face penalties. We’ve got everything you need to know in our crypto SMSF guide, including what SMSFs are, the ATO SMSF rules, crypto SMSF tax breaks, where you can get a crypto SMSF and more.
What is a crypto SMSF?
Also known as a crypto superfund, a Self-Managed Super Fund (SMSF) is a way for Australian taxpayers to include a variety of cryptocurrencies in their retirement portfolio.
The difference between an SMSF and other kinds of superannuation funds is that the members of a given SMSF are most often the trustees - so they're responsible for choosing the investments, as well as complying with the various ATO laws around managing an SMSF.
Why would you use a SMSF? Well, not only is it a great option if you want to hodl crypto as a long-term investment for your retirement portfolio, but it also comes with significant tax benefits.
How do crypto SMSFs work?
Anyone can set up an SMSF - but not everyone should (more on that later).
You can find a lot of great information on the ATO website about setting up an SMSF, but in short you'll need to:
- Speak to an accounting professional about whether an SMSF is right for you and understand the reporting requirements.
- Pick your individual trustees or corporate trustees and appoint them.
- Create your trust and trust deed.
- Check your fund is an Australian super fund and compliant with the ATO requirements.
- Register your fund and get an Australian Business Number.
- Set up a bank account.
- Get an electronic service address.
- Prepare an exit strategy.
You'll also need to understand the contributions and investments you're allowed to make using an SMSF, as well as the two phases of an SMSF: the accumulation phase and the retirement phase.
The accumulation phase is the first phase of your SMSF and refers to when you're actively contributing to your SMSF. You can't use funds in your SMSF while it's in the accumulation phase without penalty.
The retirement phase is the second phase of your SMSF and at this point, you can access your SMSF to pay yourself a pension.
You also don't get to pick when you enter the retirement phase of your SMSF. For those born after the 1st of July 1964, you can't touch your SMSF pension until you're 60 - although there are a couple of exceptions to this, like terminal illness, and permanent physical or mental incapacity.
There are also two different types of SMSF pensions you'll need to consider, based on your employment status - a transition to retirement pension and an account-based pension.
A transition to retirement pension is an SMSF pension that allows you to keep working and receive a pension. You must have reached your preservation age to do this though and there are limits on how much you can pay out of your assets per year (10%). But it's a great way to earn an income and take advantage of pension tax benefits. If you're under 65, you'll still pay a 15% tax on capital gains and income from an SMSF. If you're over 65, you'll pay no tax on capital gains or income from an SMSF.
Meanwhile, an account-based pension is a pension paid from an SMSF at preservation age (60 in general). You'll receive SMSF funds like income, instead of a total sum. SMSF income, SMSF capital gains, and personal tax on pension withdrawals are all tax free in this kind of SMSF pension. The only downside is that you can only have up to $1.6 million in the retirement phase of an account-based pension SMSF - but this won't affect most of us!
Once you’ve set up your SMSF, you can invest in a huge variety of assets in the accumulation phase, including crypto.
Crypto SMSF tax breaks
As we said earlier, one of the most significant benefits of a crypto SMSF is the tax breaks that come with it.
SMSFs benefit from concessional tax rates. This means during the accumulation phase, tax on investment income is capped at 15%, while in the retirement phase, there's no tax payable (provided you're a ‘complying fund’ and under the $1.6 million cap). Long-term capital gains can be reduced to 10% provided the asset is held for 12 months or more. You can also claim tax deductions for contributions to your SMSF - although there is a limit to your contributions each year.
So… what are the downsides?
ATO Crypto Super Fund rules
Managing an SMSF isn’t easy - otherwise we’d all be doing it. Before you jump into it, you need to understand your obligations. Not only will you need to find and appoint an SMSF auditor, but each year you'll need to:
- Value your SMSF fund assets.
- Lodge SMSF annual returns.
- Report transfer balance cap events.
- Lodge SMSF transfer balance account reports.
- Keep excellent records for the ATO and your auditor.
- Notify the ATO of any changes to your SMSF.
- Regularly check your SMSF registration status.
As well as this, there are strict rules around your SMSF investment strategy. The superannuation laws mean you must prepare and implement an investment strategy for your SMSF, which you need to follow and review regularly. It needs to set out your goals and how you'll meet them.
Your SMSF also needs to pass the sole purpose test to be eligible for tax concessions. Put simply, this means your fund needs to be maintained for the sole purpose of your retirement fund and you do not obtain a shorter-term financial benefit when making investment decisions. Failing to meet these requirements means you'll not only lose your concessional tax treatment benefits, but you may also face civil and criminal penalties.
If you’re confident you can deal with all of this… there are several crypto exchanges allowing crypto SMSFs.
Where can I invest in crypto with an SMSF?
If you’ve set up your fund and you’re ready to go there are several popular Australian crypto exchanges that make it easy to invest in crypto with an SMSF, including:
Although the steps for investing in crypto with an SMSF for each exchange will differ slightly, in general you'll need to create a new account under your SMSF name (as well as deposit funds from a bank account associated with your SMSF name) and complete the necessary KYC verification process. This will usually be for a business account type and you may need to provide various details such as:
- SMSF Name
- Registration Date
- Registered Address
- SMSF ABN
- SMSF trust deed
- Proof of business operating address
- Proof of residence
- Personal ID
You may need to do this for each trustee associated with your SMSF. Once you’re verified, you can trade and invest within the limits of your SMSF investment strategy.
How Koinly can help your manage your SMSF investments
Koinly can help you (or your accountant!) with your SMSF crypto investments. As you need to trade entirely separately from your regular investments with an SMSF, you’ll need to set up a new account in Koinly.
After this, simply sync the exchanges you use with your SMSF with Koinly via API or by uploading a CSV file. Koinly will then be able to track and calculate your crypto investments on your behalf, including your cost basis for assets, any capital gains or losses and the fair market value of any income. You’ll be able to view a complete breakdown of your investments in a variety of Koinly tax reports, including:
- Complete Tax Report
- Capital Gains Report
- Income Report
- Other Gains Report
- Expenses Report
- End Of Year Holdings Report
- Highest Balance Report
- Buy/Sell Report
- Transaction History
When it’s time for you to lodge, upgrade to a paid Koinly plan and download the reports you need, or give your accountant access to your Koinly account so they can file on your behalf with all the information they need ready.
Sign up and try Koinly free today.
The information on this website is for general information only. It should not be taken as constituting professional advice from Koinly. Koinly is not a financial adviser or registered tax agent. You should consider seeking independent legal, financial, taxation or other advice to check how the website information relates to your unique circumstances. Koinly is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by use of this website.