Bitcoin in SMSF

I have done some write up for friends insterested in having Bitcoin in their SMSF so I have cleaned it up a bit and shared in on my website.

Exploring Bitcoin within a Self-Managed Super Fund (SMSF)

Bitcoin can be included in your superannuation, but exclusively through a Self-Managed Super Fund (SMSF).

Note: The information provided below pertains specifically to Australia. It’s strongly advised to conduct thorough research before making any investment decisions. Starting an SMSF is a serious undertaking.

SMSFs

An SMSF functions as a trust managed by a company, identified by its Australian Company Number (ACN). While there are alternative approaches, having a corporate trustee overseeing the trust is the preferred method.

SMSFs offer a diverse range of investment opportunities, spanning from traditional assets like stocks and bonds to alternative assets such as property, gold, artwork, wine, and cryptocurrency.

Benefits

Operating an SMSF provides numerous tax advantages, prompting many individuals to include their spouses and children in the fund. This approach is particularly beneficial for families with children.

An SMSF is treated as a single managed entity, with members not directly owning the fund’s assets – the fund owns the assets. Each member receives a yearly benefit statement, typically reflecting their contribution to the fund. Taxation within SMSFs mirrors that of traditional superannuation, including tax rates and contribution caps. Notably, capital gains tax (CGT) is taxed at 15%, but becomes CGT-free upon withdrawal post-retirement. E.g. if you sell at retirement, you don’t have to pay CGT.

Regulatory Considerations

SMSFs have extensive accounting and regulatory obligations, which is why you generally pay someone to do it, like you pay an accountant to do your taxes. Once established, the fund is regulated like regulated super fund like any other, e.g. searchable here Superfund Lookup. You can then choose for your employer to pay your super into that fund. Superannuation Standard Choice Form.

However, failure to comply with regulations can lead to deregistration by the Australian Taxation Office (ATO). To make things simple, I would recommended using your super to buy Bitcoin, hold it in own cold storage and don’t touch it. This keeps the ATO happy, they can’t take it from you and also means you only care about the BTC price when you retire.

Cost

Setting up and maintaining an SMSF is costly, with initial setup expenses exceeds $3,000 and ongoing annual costs surpassing $2,100. These expenses are covered by the fund, though reimbursement may be necessary if initially paid by the individual. Funds must have sufficient cash to cover ASIC fees, super fund levies, accounting fees, and ATO charges.

Storage

Once you’ve purchased Bitcoin, you need to store it securely. The fund can cover expenses for cold wallets and other SMSF-related expenses. Recommended cold storage options include the Coldcard Mk4 or hardware wallets from Coinspot.io. Ensure you learn about cold storage before committing all your super to it.

Process

1. Establishing the SMSF: Engage professional assistance to set up your SMSF, ensuring compliance with regulatory requirements. Be prepared for initial setup costs and ongoing administrative expenses, which the fund will pay for.
2. Create a Fund Bank Account: Using a bank for credit unit, open a transactional bank account for the SMSF, in the SMSF’s name. This will be a trading account for the SMSF and you can buy cold wallets and other SMSF. A debit card is nice to have on this account but not all banks have this option. Note: CBA have hard $10K per month limit on crypto transfers, so not a good option.
3. Change your Super Fund: Use the Superannuation Choice form to change super funds that your employer pays into. Superannuation Standard Choice Form
4. Roll over your super to the new fund’s bank account: Superannuation Request for Rollover of Whole Balance Between Funds
5. Register the fund with an Exchange or OTC Provider: Register the SMSF with a reputable cryptocurrency exchange or over-the-counter (OTC) provider, to purchase and transfer of Bitcoin. Choose an Australian based exchange like Coinspot to keep things simple and keep the ATO happy.
6. Buy the Bitcoin and send to cold storage: Transfer the funds to the exchange you selected, buy the Bitcoin from the exchange then send it to your cold storage option.

SMSF Providers

There are many SMSF providers out there. They do the accounting and auditing for the fund and will be the main cost to running the fund. You will want to use one understands crypto; below are 3 recommendations but there are many more options out there.

1. New Brighton Capital: It was the only one around when I started and was recommended by crypto OG friends. They have great crypto API feeds to make crypto management simple, no lock in contracts (leave any time), however they are not the cheapest.
2. Esuperfund: A popular choice now and about the cheapest option. I have not used them however have friends that do have heard good things.
3. Hard Block: Another option and a Bitcoin only exchange. They have a podcast on SMSF.

If you believe in Bitcoin, it’s a no-brainer, in my opinion. Just be aware that it will take time and effort to set up and manage properly.

A Test Case of an SMSF on 16 January 2024

Not financial advice, just sharing some thoughts. No one knows what will happen over the next 4 years. But here’s a hypothetical scenario: if you had $100,000 AUD four years ago and put it into an SMSF to buy Bitcoin, what would have happened?

If you had started an SMSF on 16th January of the previous cycle (2020) with $100,000 to buy Bitcoin, you could have purchased about 7.8 BTC at $12,750 AUD per BTC. Current AUD value would be $493,800 at $63,316 AUD per BTC - as at 16 Jan 24.

Accounting for SMSF fees of approximately $10,000 over four years there would be a profit of about $383,800 or $95,000 per year. This assumes the Bitcoin wasn’t traded and stayed in cold storage.

No one knows what will happen in the next four years, but it gives you an idea of why Bitcoin in an SMSF is a good idea despite the cost.

Early on, people advised me to buy Bitcoin in an SMSF, self-custody it, and leave it till retirement – I think it’s good advice.

You’ll need 3 or 4 million in super when you retire (accounting for inflation), and 10% compulsory super won’t cut it. You need a plan.