8 Best Crypto SMSFs (December 2024)
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In this guide, we’ll break down the 8 best options for crypto SMSFs for Australian investors. We’ll also explain the reporting requirements and tax benefits for SMSFs!
Can I hold crypto in an SMSF?
You are allowed to hold cryptocurrencies in an SMSF as long as you meet the following three requirements.
- The crypto investment is allowed under the SMSF’s trust deed
- The crypto investment is in accordance with the fund’s investment strategy
- Crypto investments comply with the same regulatory requirements that apply to other investments
In addition, your SMSF must be registered with the ATO and have an Australian Business Number (ABN).
How do crypto SMSFs work?
Before you get started with SMSFs, it’s important to understand how they work. SMSFs have two phases: the accumulation phase and the retirement phase.
Accumulation phase: During the accumulation phase, you contribute to your SMSF. You cannot withdraw from your SMSF during this phase (unless you’re willing to pay large penalties).
Retirement phase: During the retirement phase, you’ll be able to access your SMSF income in the form of a pension. This happens when you reach the ‘preservation age’. For those born after July 1st, 1964, the preservation age is 60.
What are the types of pensions with a crypto SMSF?
You'll encounter two primary pension types: the Transition to Retirement (TTR) pension and the Account-Based Pension.
TTR Pension: This pension is designed for those who have reached their preservation age but are not yet ready to retire fully. This type of pension allows you to continue working while beginning to draw down on your superannuation. You can withdraw up to 10% of your SMSF assets annually starting at age 60, providing a steady income stream while still taking advantage of pension tax benefits. For individuals under 65, a 15% tax applies to capital gains and SMSF income. After the age of 65, income is tax-free.
Account-Based Pension: Account based pensions allow you to receive a customizable monthly pension from your SMSF. This pension type is especially tax-efficient, as both the income from the SMSF and capital gains are tax-free! Account-based pensions are subject to a ‘transfer balance cap’ — the maximum amount that can be transferred from accumulation to retirement phase. Currently, the transfer balance cap is $1.9 million.
What are the tax advantages of an SMSF?
SMSFs offer several tax benefits that can be particularly advantageous for cryptocurrency investments:
- Concessional tax rate: All contributions made to an SMSF are subject to a 15% concessional tax. If your marginal tax rate is above this rate, this can be advantageous.
- Capital gains tax discount: If the SMSF holds an asset like cryptocurrency for more than 12 months, it may be eligible for a one-third discount on capital gains tax upon the sale of the asset.
- Tax-free pension phase: Any income generated by the SMSF assets —including capital gains from the sale of cryptocurrencies — is tax-free after you reach ‘preservation age’ at age 60.
What are the requirements for a crypto SMSF?
Managing an SMSF can be complicated. Before diving in, it's important to understand your responsibilities.
You’ll need to find an SMSF auditor and complete the following tasks each year:
- Accurately valuing the assets within your SMSF
- Lodging tax returns for your SMSF
- Reporting transfer balance cap events
- Submitting transfer balance account reports
- Submit records for both the ATO and your auditor
- Informing the ATO of any updates to your SMSF
- Regularly verifying the registration status of your SMSF
Superannuation laws require the formulation and adherence to an investment strategy, which must be regularly evaluated. This strategy should outline your investment objectives and how you plan to achieve them.
Your SMSF must also satisfy the sole purpose test to qualify for tax benefits. This essentially means that your fund should be used strictly for retirement rather than immediate financial advantages. Failing the sole purpose test can lead to civil and criminal repercussions, as well as losing your SMSF tax advantages!
In conclusion
Crypto SMSFs can help you build wealth for the long-term. Make sure that you understand your requirements and responsibilities before getting started.
Frequently asked questions
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