Collectable asset rules a barrier to holding NFTs
Holding NFTs in an SMSF is impossible from a compliance standpoint as the collectable asset rules are likely to apply, a technical expert has warned.
In a recent online article, SMSF Alliance principal David Busoli said that with an increasing number of Australians dabbling in crypto investment, inevitably some SMSF members will want to add them to their fund.
“Cryptocurrency is generally allowable subject to adequate consideration in the fund’s investment strategy and allowability in the fund’s trust deed but be careful of variations,” Mr Busoli noted.
Non-fungible assets (NFTs), on the other hand, are likely to cause compliance issues for the fund, he cautioned.
“Non-fungible assets are arguably works of art and therefore fall into the category of collectables. The draconian rules surrounding collectables significantly discouraged SMSFs from investing in physical works of art,” he said.
“When these rules are applied to digital assets it is clear that it is impossible to comply with them so NFTs simply can’t be held in an SMSF.”
While cryptocurrency is not impacted by the rules for collectable assets, Mr Busoli said the lack of audited processes and general lack of auditable evidence surrounding crypto transactions and ownership inevitably leads to SMSF audit qualifications.
“Consideration should also be given to the cost of processing crypto data as platforms and downloadable data systems are in their infancy,” he added.
In an article last month, Townsends solicitor Elizabeth Wang said it might be difficult for an SMSF to satisfy the sole purpose test where they hold NFTs.
“The ATO states that a cryptocurrency is more likely to have been acquired as a personal use asset if the cryptocurrency is acquired and used within a short period of time in comparison to a cryptocurrency being acquired and held for time before any such transaction is made,” Ms Wang said.
An SMSF may be able to satisfy this requirement, she said, if the trustee is able to show that the NFT will not be used as a personal-use asset by the trustee or the members of the SMSF and instead will be kept or mainly used as an investment.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
