Risky behaviours with cryptocurrency and SMSFs on ATO’s radar
With the ATO requiring SMSFs to fill out additional data about their cryptocurrency investments in their tax return, this could be a sign that the regulator will be checking to see that trustees are undertaking proper record keeping and that there is clear separation of ownership, warns an auditor.
Speaking to SMSF Adviser, Hayes Knight director of SMSF services Ray Itaoui said that, as part of the 2019 tax return, SMSFs are required to record if they have any cyrptocurrency investments in their fund.
“In the past, cryptocurrency was recorded under the ‘other asset’ section of the tax return, so it was hidden and it wasn’t that clear that the fund was invested in cryptocurrency. Now the ATO wants accountants to specifically identify cryptocurrency on the tax return so it’s going to know what funds have invested in these assets,” Mr Itaoui explained.
The fact that super funds are now identifying on their tax return whether they are investing in these assets, he said, could be an indication that the ATO is aware that it is a challenging asset to hold in a super fund and that it is concerned that some funds may be getting it wrong.
“It may become a focus area for the ATO once they have that information on what funds are investing in it. I suspect they want to ensure that trustees are doing the right thing and making sure that there is a clear separation of ownership and that trustees are diligent in their record keeping,” he said.
“Imagine if you ended up with a situation where a trustee or member passes away and no one can access their digital wallet, and there might be $500,000 of cryptocurrency or bitcoin and it can’t be accessed because they haven’t kept on top of their record-keeping requirements or followed the right processes. The ATO wants to avoid situations like that from happening, so they are being proactive in identifying funds that are high-risk.”
Mr Itaoui clarified that SMSFs are able to invest in cryptocurrency, but said it can be challenging to make sure that it is structured correctly because it is quite complex.
“I suspect that a lot of practitioners and a lot of auditors don’t necessarily understand exactly what they have to do to be able to make sure that they are investing in these types of assets correctly, so the ATO is providing more information for accountants, and auditors might [be] a starting point as well,” he said.
“It’s going to be interesting because bitcoin has been heading back up to the $US11,000 mark again, so it’s starting to gear up at a point where returns and interest rates are low which may see it become relevant again.”