Choosing the Right Structure for Your Crypto Affairs

As we conclude our 4-part blog series on crypto structuring, we've explored the unique benefits and challenges of using trusts, companies, and self-managed super funds (SMSFs) for managing your cryptocurrency investments. Each structure offers distinct advantages tailored to different investment goals, tax strategies, and compliance requirements. In this final blog, we'll summarise the key takeaways from each structure and provide a real-world case study showcasing how all three structures can work together.

Family Trusts

Advantages

• Asset protection (potential for 3-tier)
• Flexibility to choose the amount and WHO to distribute to, i.e. flexible tax effective distributions
• Ability to stream certain types of income and tailor to evolving circumstances
• Eligible to discount capital gains and distribute them to eligible beneficiaries allowed to discount the gain
• Succession planning flexibility

Disadvantages

• Cannot retain income/profits and should distribute any income/profits annually
• If income/profits not distributed, trustees taxed at highest marginal tax rate
• Difficult to retain profits for reinvestments
• Can be more legally complex as each trust can have tailored rules that must be adhered to

Companies

Advantages

• Asset protection
• Flat corporate tax rate of 25% or 30%
• Ability to retain profits, so can pay profits WHEN it is more tax optimal to
• Ability to attach franking credits to dividends and is a tax credit for the shareholder

Disadvantages

• Not eligible to discount capital gains
• Dividends can only be paid to shareholders

SMSFs

Advantages

• One of the lowest taxed investment vehicles at 15% and can eventually be 0%
• Maximum investment flexibility
• Control of retirement funds

Disadvantages

• Strict super laws to adhere to which includes annual audit
• Funds not accessible until later in your “retirement” life
• Generally higher dollar costs compared to retail/industry super funds

 

Case Study: The Ultimate Crypto Wealth Strategy

Background

Ethan and Mia are a crypto-savvy couple in Brisbane. Ethan is a software engineer earning $220,000 annually (so on the highest marginal tax rate), and Mia is a part-time designer earning $40,000 (on lower marginal tax rate). The couple has $500,000 in existing savings, including $300,000 in Mia's superannuation. They want to create a comprehensive structure to manage their crypto investments while optimising tax and planning for retirement.

After receiving professional advice, they execute the below structure to optimise their crypto futures moving forward.

Company for High-Frequency Trading
Ethan incorporates a private company to conduct his high-frequency trading activities. Using $100,000 of their savings, he actively trades altcoins, generating $150,000 in profit for the year. The profit is taxed at the corporate tax rate of 25%, saving them approximately $33,000 compared to if the income were taxed at Ethan's marginal rate. The retained earnings are reinvested into the company to compound their wealth.

Trust for Long-Term Investments
Ethan and Mia set up a Family Trust to be the shareholder of the trading company, as well as manage their long-term cryptocurrency investments. They use $200,000 of their savings to purchase Bitcoin and Ethereum, planning to hold them for over 12 months. The trust allows them to distribute capital gains to Mia (who pays a lower marginal tax rate) when the assets are sold in the future. This strategy saves them thousands in tax due to the 50% CGT discount. In the years when Ethan and Mia have less income, a dividend is declared from the company to the trust, and streamed to them to take advantage of lower taxable income situations. They also happen to receive a partial tax refund in the tax returns from the franking credits attached to the dividends.

SMSF for Retirement Planning
The couple establishes an SMSF and rolls over Mia’s $300,000 super balance. They use $100,000 to invest directly in Bitcoin, which they self-custody. Any capital gains realised in the SMSF are taxed at just 10% (long-term CGT), and when they retire, the earnings will be entirely tax-free. Mia also makes additional voluntary contributions to the SMSF to maximise the concessional tax benefits.

Results
This multi-structure strategy allows Ethan and Mia to:

•         Minimise tax on their trading profits and long-term crypto gains.
•         Build a tax-free retirement fund through their SMSF.
•         Achieve asset protection through the company and trust structures.
•         Diversify their wealth-building strategies for different time horizons.

Conclusion
There’s no one-size-fits-all approach to crypto structuring, but understanding how trusts, companies, and SMSFs can be used strategically is key to building and protecting your crypto wealth. Whether you’re degening with altcoins, hodling Bitcoin for the long term, or want a more sovereign retirement plan, working with experienced crypto accountants can make all the difference.

Click here to schedule your consultation and take the first step towards savvy and smart crypto tax structures.