As bitcoin adoption continues to surge, our clients are increasingly looking for new ways to incorporate it into their portfolio. One way that is gaining popularity is to establish a Self-managed Superannuation Fund (SMSF) that allows investing in bitcoin.

The process of setting up and operating a SMSF for the purpose of investing in bitcoin can seem confusing and expensive at first. However, it is easier and more cost-effective than most realise. To clarify the process, this article aims to provide a "bitcoin SMSF for dummies" walk-through to describe "what is a self-managed super fund?" and "what is required to set up and operate a SMSF for the purpose of investing in bitcoin?"

If you would rather listen to a discussion on how you can set up an SMSF to invest in bitcoin, then check out the SMSF Walkthrough and FAQs episode from the Australian Bitcoin Podcast.

What is a self-managed super fund (SMSF)?

A SMSF is a private super fund that you manage yourself. SMSFs are different to industry and retail super funds. For example, when you manage your own super, you put the money you would normally put in a retail or industry super fund into your own SMSF. You also choose what investments and insurance your SMSF will hold.

What is required to set up and operate a SMSF?

1. Choose a SMSF Administrator

A SMSF Administrator is an Accountant or an organisation that specialises in establishing and maintaining SMSFs. We have had great experience with SMSFWarehouse and encourage our clients to use their service.

2. Contact your SMSF Administrator to establish your fund

Your SMSF Administrator will collect the required details (e.g., the name, date of birth, address, and tax file number [TFN] of any trustees of the fund); query how you would like to use the fund (e.g., apart from bitcoin, what other investments is the fund likely to make?); and walk you through completing the required documentation (i.e., a deed to establish the SMSF, forms to appoint your chosen trustees, and a formal fund investment strategy document).

3. Set up a SMSF bank account

Once the SMSF Administrator informs you the fund is set up, you then use the fund details (e.g., the fund’s name, TFN, and Australian Business Number) to sign up to a bank account dedicated to your SMSF. You can use any bank that allows you to set up an account in the name of the SMSF. We do not have any strong recommendations of which bank to use. However, some of our clients have commented that Commonwealth Bank’s “cash account” (also called a Commonwealth Direct Investment Account [CDIA]) has a quick online sign-up process and is easy to use.

4. Set up a SMSF HardBlock exchange account

Similar to Step 3, you then use the fund details to set up a HardBlock exchange account dedicated to your SMSF. Email us at hello@hardblock.com.au and we will walk you through this process. As a spoiler, the process is as simple as signing up a new account with a different email address and then completing our SMSF form.

5. Roll-over your existing superannuation into your SMSF (and/or make new cash contributions to your SMSF)

To roll-over your existing superannuation into your new SMSF, you will need to contact your current superannuation fund and complete their roll-over form. To make new cash contributions to your new SMSF, you can contact your SMSF Administrator for guidance (generally, this entails completing a form to disclose you are making a new contribution to your SMSF and then you would deposit cash from your personal bank account into your SMSF bank account).

6. Plan how you will secure your SMSF bitcoin investment

Consider how you will store your SMSF bitcoin. It is important that you do not simply use an existing personal wallet for this, as SMSF assets must be kept clearly separate to your own personal assets. Any expenses for securing your SMSF bitcoin must be funded with cash from your SMSF bank account, rather than your personal bank account. For example, if you decide to purchase a hardware wallet and/or metal seed back-up, then purchase these with funds from your SMSF bank account. We strongly recommend against storing your bitcoin in your HardBlock exchange account.

7. Buy bitcoin with your SMSF HardBlock exchange account

Log in to your SMSF HardBlock exchange account, make an AUD deposit into the account from your SMSF bank account, and then buy bitcoin for your SMSF at your discretion. You may also choose to use our dollar-cost averaging features (i.e., Auto-Buy and Auto-Send) – find out more about these here.

8. Withdraw bitcoin from your SMSF HardBlock exchange account to your SMSF wallet

After buying bitcoin with your SMSF HardBlock exchange account, withdraw your bitcoin according to the security plan you developed in Step 6. The cheapest way to withdraw bitcoin is to use our Auto-Send feature.

9. Complete end-of-financial-year reporting with your SMSF Administrator

Contact your SMSF Administrator at tax return time to complete the required annual SMSF reporting. You can subscribe to the Financial Year statement email in your HardBlock account to make this process easier. In summary, you will report on any bitcoin that your SMSF bought/sold or transferred during the past financial year.

How long will this take?

As the majority of the steps are completed online (e.g., via email or online forms), each step should take between 20-60 minutes.

What is the sole purpose test?

All Australian SMSFs must pass the sole purpose test, which requires the SMSF to only benefit the SMSF directly. No one (including trustees) can obtain a direct financial benefit when making investment decisions with fund money.

The main way of passing the sole purpose test is to ensure the SMSF assets are held separately from personal assets. This is why you must set up a bank account and HardBlock exchange account in the name of your SMSF (rather than simply using your personal accounts). You must also store your bitcoin independently of any other bitcoin you may have. Additionally, you should never deposit personal bitcoin into your SMSF bitcoin wallet; likewise, you should never deposit SMSF bitcoin into any personal wallet that is not clearly linked to your SMSF.

Who can help me get started?

Email us at hello@hardblock.com.au and we will walk you through this process!