As cryptocurrency is currently seen as a legitimate investment asset class, large institutional investors have included it in their portfolios. We have also witnessed the launch of crypto exchange-traded funds (ETFs). For those aspiring to improve their wealth in preparation for retirement, including crypto in a self-managed super fund (SMSF) is one option to cut down on tax and maximise their earnings. This article will provide everything you need to know about self-managed super funds.
What is a self-managed super fund (SMSF)?
As the name indicates, a self-managed super fund (SMSF) is a private super fund owned and managed by its members. As trustees, members make all decisions on the fund’s operation, its investments, and the kind of benefits it can pay. The great level of control and flexibility provided by SMSFs are seen as some of their primary benefits.
If a fund uses a corporate trustee, each SMSF member must serve on the board of directors of the corporate trustee. The firm must be registered with ASIC, and each director must also be a member of the relevant SMSF.
From 1 July 2021, an SMSF is permitted to have a maximum of six trustees/members, up from four before.
To be eligible to become a member (and hence a trustee) of an SMSF, an individual must sign a trustee declaration agreeing to become a trustee and accepting their obligations. SMSF members/trustees are not permitted to:
- Being a declared bankrupt
- Have been previously disqualified as a trustee of an SMSF by a court, the ATO, or ASIC
- Have a connection of employer/employee with another fund member (unless they are a relative).
Members under the age of 18 can join an SMSF if they are represented by a trustee willing to act on their behalf. Typically, this is a parent or guardian.
How does an SMSF work?
The primary purpose of SMSFs is to provide financial benefits to members during retirement and to their beneficiaries upon death. They operate under their Tax File Number (TFN), Australian Business Number (ABN), and transactional bank account, enabling them to get contributions and rollovers, invest, and pay lump amounts and pensions. SMSF investments are made in the fund’s name and are subject to trustee oversight. An SMSF, like a trust, needs a trustee.
There are two types of trustee structures available:
- Corporate trustee: A corporation serves as a trustee, and each member serves as a director. This structure simplifies the process of documenting and registering assets, resulting in increased administrative efficiency and membership flexibility.
- Individual trustee: Each member is designated a trustee, with a requirement of a minimum of two trustees.
Why set up a self-managed super fund?
Many people don’t think there’s good enough reasons to set up an SMSF. But in fact, there are plenty of reasons why you can set up your SMSFs.
You are in charge of your investments
The main reason to start your self-managed super fund is that you (and your trustees) can decide what to invest in and how much money to put in it. Most super funds don’t let you invest in crypto, so you’ll have to set up your SMSF for crypto investment. As the crypto self-managed super fund’s manager, you can decide which crypto coins to invest in and how much money to invest.
You need to check all the laws and regulations in your area to meet all the requirements to operate legally. For your SMSF, you need to choose a crypto exchange in Australia. It can be challenging to get data from international exchanges and open an account in the name of your SMSF fund.
Australia has a lot of great places to buy and sell crypto. You can read our reviews of the best crypto exchanges in Australia or sign up with our top pick, CoinSpot. For more information about the number of cryptocurrencies supported, security features and trading fees, you can read our CoinSpot review.
You can use SMSFs for property investments
With an SMSF, it’s possible to invest in expensive assets that you might not otherwise be able to get your hands on. The assets include commercial and residential properties. It’s also possible to get a limited recourse loan through your SMSF to borrow money.
Most of the time, the security for a limited recourse loan is 60% to 70% of the loan amount. But this doesn’t cover things like legal fees or stamp duty costs.
If you buy a house through your SMSF, keep in mind that you can’t live there. Those related to any of the trustees of an SMSF should also follow these rules.
In addition, it’s not advisable to purchase a house to make it look better. You can do many things with the money you borrow, but you can’t spend it on new things. This also means that it’s not possible to buy an empty lot or a development site to build on.
You can manage and reduce your taxes
An SMSF can have up to four members and multiple pension accounts. If one or more members retire, you can reallocate the funds to gain a tax advantage.
Up to four members and several pension accounts are permitted in an SMSF. If one or more members retires, it is possible to reallocate the fund to take advantage of the tax benefits.
You can use SMSFs for asset protection
Asset protection is of great importance for investors and company owners, and an SMSF excels at safeguarding all of its members in the case of insolvency or lawsuit. It is likely that creditors will protect your SMSF’s benefits. Your sole asset will be your SMSF balance unless your business venture succeeds.
When purchasing a property via an SMSF, asset protection is provided. Because you are not buying in your name, your creditors or those holding your liabilities cannot pursue your SMSF properties.
Some Drawbacks of Crypto SMSFs
While SMSFs have several advantages, they are not ideal for everyone. Among the downsides of establishing an SMSF are:
Legal and compliance obligations
SMSF trustees or trustee directors are individually accountable for the fund’s activities and are required by law to administer the fund properly on behalf of its members. The trustee has to stay current on the rules and legislation or consult a professional SMSF advisor with extensive superannuation understanding.
Due to a lack of professional knowledge, the risk of non-compliance with corporations, superannuation, trust, and taxes regulations may increase. A violation might result in significant financial fines or perhaps incarceration.
Expertise and performance
There is a risk that trustees may overlook diversification (and other investment criteria), resulting in a fund’s medium to long-term returns being lower than those of a retail fund.
Trustees must consider all fund members and their projected retirement dates when developing an investment strategy and arrange the portfolio to ensure adequate liquidity to pay retirement benefits when they are expected to become due.
Costs for managing SMSF
Annual costs associated with administering, operating, and reporting on your SMSF and fees related to investing the fund’s money may be considerable. For instance, some of the fees associated with operating an SMSF are:
- Audit costs charged by an ASIC-registered independent SMSF auditor.
- Fees associated with the preparation of your SMSF’s annual return report.
- Fees associated with the asset value of your SMSF.
- Insurance premiums and legal costs.
- Brokerage and financial advisory commissions.
The fees and charges associated with operating and administering your SMSF (and the transaction costs related to buying and selling assets) influence your expected profits directly. According to ATO data, SMSFs with less than $2 million in assets recorded a negative average investment return.
You must live in Australia
The majority of members in the fund must permanently reside in Australia in order to comply with Australian legislation. If you want to establish an SMSF but do not reside in Australia or are contemplating migrating overseas, this is indeed a major issue.
How to Set up an SMSF?
You can establish an SMSF in one of two ways: via an individual SMSF trustee structure or a corporate SMSF trustee structure. These structures are very different from one another, and you should thoroughly comprehend each before making a choice.
If you choose to establish an SMSF and serve as trustee, you are ultimately liable for the following:
- Ascertaining compliance with all applicable super regulations and tax legislation
- Managing the fund’s investments – either directly or via a consultant or advisor.
Trustees may be held liable for any law violations involving their funds. Fines and possibly prison time are possible penalties.
Stringent rules and restrictions govern the management of an SMSF. For instance, it is unlawful to utilise an SMSF to get early access to your super, buy a holiday home, or purchase artworks to adorn your home.
How to set up SMSFs with CoinSpot?
Before you can start using CoinSpot, you’ll need to set up your SMSF Trust with an applicable company such as New Brighton Capital or one of the many others available. Once your SMSF account is established, you will be able to set up your account with Australia’s most trusted digital currency exchange.
What to get on CoinSpot?
CoinSpot is among Australia’s most trusted digital currency exchanges that provide you with so many exclusive features. When you include crypto in your SMSF on CoinSpot, you can receive these benefits:
- A read-only API interface that accountants and fund managers can use to keep track of your money.
- You can get right to Australia’s largest selection of crypto, with 350+ different types of cryptocurrencies supported by CoinSpot.
- It’s easy to keep track of your taxes and audits with EOFY year reporting.
- To trade from one asset (coin) to another, you can use any currency on the platform to do so.
- SMSF support team is friendly and local. They can help customers set up SMSFs, answer customers’ queries and resolve their issues promptly.
- OTC (Over the Counter) services are available for people who do a lot of trading.
- The highly-rated crypto exchange registered with AUSTRAC and meeting ISO 27001 standards, offering the best security protocols in the industry.
What is required to get started?
To establish a CoinSpot Self Managed Super Fund account, you will need the following:
- Drivers licence or passport (All Directors & Individual Trustees)
- Name and address of the trust registered
- Trust ABN.
- A signed copy of the Trust deed.
- Verification photos.
How to create a CoinSpot SMSF account?
1. To begin, enter your email address and a secure password for your CoinSpot SMSF account.
Figure 1. Register SMSF Account
2. Select ‘Complete Verification’ to proceed.
Figure 2. Your SMSF Account Created
3. Verify your email address by checking your inbox. After verifying your email address, click ‘Complete Verification’.
Figure 3. Verify Your Email Address
4. In the “Account Type” section, choose “This is a Self Managed Super Fund (SMSF) account” and then provide your account holder details as required.
Figure 4. MSF AccountHolder Details
5. After completing the Account Holder Details section, you have to upload your ID documents.
Figure 5. Verify ID Documents
6. Next, you have to get your mobile phone number verified and confirmed.
Figure 6. Verify Your Phone Number
7. Completing your SMSF’s information. You have to fill out this section with your SMSF information.
Figure 7. Fill Out SMSF Information
8. Your Trustee Information will be uploaded automatically; if you are the only Trustee, you may continue to submit your Trust Deed.
If your SMSF has more trustees, you must add them using the ‘Add Additional Trustee’ option.
Figure 8. Provide Trustee Details
9. Finally, you must submit your CoinSpot Verification Photo. Make sure that you hold a note with the following information in your photograph;
Figure 9. Verify Your Photo
10. Once all sections have been filled with the required information, click the ‘Submit for Verification’ button. CoinSpot’s dedicated SMSF team will examine your application and may call you for more information.
Figure 10. Submit Verification