Crypto Self-Managed Super Funds and Tax

Self-managed super funds (SMSFs) can be a powerful way for Australians to take control of their retirement portfolios. Unlike traditional superannuation companies, who make investments on your behalf, an SMSF allows individuals to dictate what exactly their retirement funds invest in. 

The financial empowerment provided by an SMSF allows Australians to purchase unique asset classes, including cryptocurrency. This has become an increasingly popular option, given digital currency’s long-term potential and growing legitimacy. According to the Australian Tax Office (ATO), over AUD $1b worth of crypto is held in SMSFs – a number that’s only going to increase in the coming years.

Using an SMSF to invest in digital assets can provide unique tax advantages to individuals. But come tax time, navigating the financial implications can be a little confusing. Luckily, there are several tools that can help ease the potential pain of filing a tax report.

Understanding cryptocurrency in SMSFs

Self-managed super funds come with several benefits – primarily, having total control over a retirement portfolio. As long as certain requirements are met, an SMSF can invest in most asset classes, such as crypto. This gives investors flexibility that other superannuation options may not afford.

SMSFs pair this freedom with the tax advantages of traditional super and are typically taxed at a lower rate than the average crypto trade.

Of course, using an SMSF comes with a set of additional responsibilities that must be acknowledged. SMSFs must write up (and follow) an official trust deed and investment strategy, submit regular compliance reports to the ATO and operate an SMSF-specific bank and crypto trading account.

Because of administrative fees and the financial complexity, most SMSF holders begin their portfolio with at least AU $150K.

Incorporating cryptocurrency into SMSFs

Cryptocurrency has become a prevailing option for SMSFs over the past five years. Digital assets are renowned for their volatility and long-term potential – which aligns well with a retirement portfolio’s “HODL” nature. On top of this, crypto can be a great way to diversify a fund away from traditional stocks and bonds, which can help navigate potential economic downturns.

There is no real restriction on which cryptocurrencies can be added to a crypto SMSF, so long as they fit the investment strategy and Trust Deed. Investors will likely be limited by their broker’s list of supported coins, although several Australian exchanges offer hundreds of coins for SMSF accounts. 

Setting up an SMSF can be a complicated process, and it’s recommended that those new to the scene consult a professional. To invest in crypto, the investor must open a dedicated SMSF account on a supported Australian exchange, such as Swyftx, and buy/sell digital assets within the bounds of their investment strategy.

How is crypto taxed in an SMSF

When you sell (or dispose) crypto from a regular trading account, you incur what’s called the Capital Gains Tax (CGT). Although these rates are subject to change, CGT – without a discount – is taxed at your personal income rate.

On the flipside, SMSFs have a flat CGT rate of 15% – much lower than most personal income tax rates. To make matters even more enticing, SMSF assets held for more than 12 months before disposal are subject to a 33.33% discount.  

Regulatory compliance

There are several regular compliance checks that SMSFs must meet to abide by ATO guidelines. There is an annual audit, where the SMSF trustee must report the overall market value of their retirement portfolios as of the EOFY.

Additionally, trades made within an SMSF account must be reported – regardless of whether a taxable event is incurred or not.

Failure to meet the ATO’s regulatory standards can result in harsh penalties and fines, which can quickly wipe out the tax advantages of investing via an SMSF.

Getting your SMSF taxes done

To ensure regulatory compliance, it’s a good idea to consult a tax and SMSF professional come tax time.

Although traditional accounting firms are slowly starting to add crypto, Australian crypto investors may benefit from using professional crypto tax software dedicated to the digital asset sector.

Companies like Syla offer SMSF account holders an easy way to record their crypto transactions and calculate tax outcomes for tax time. These platforms can connect to your exchange of choice to automatically generate a low-cost tax report based on your annual transactions. This takes the hassle out of manually recording every single purchase or sale of crypto and helps to reduce your annual compliance costs.

When choosing crypto tax software for your SMSF, ensure you select one which has account types specifically for SMSFs, as there are tax differences which need to be taken into account. 

Ultimately, using a professional crypto tax software, like Syla, is a great way to help ensure regulatory compliance and get the lowest possible tax bill come the EOFY.