Tax Office urges SMSFs to seek advice on crypto assets

The ATO noted that there are a range of organisations that offer trustees help to set up a fund or use their existing fund to invest in crypto assets.

“However, some of these organisations are not licensed to provide financial advice. This means the usual consumer protections and access to the Australian Financial Complaints Authority (AFCA) are not available for using these services,” the ATO cautioned.

The ATO also warned trustees that there are a lot of things to consider before deciding to invest in crypto assets.

“Remember, when investing in crypto assets, you must ensure it is allowed under the fund’s trust deed, is made in accordance with the fund’s investment strategy and you have considered the level of investment risk given the highly volatile nature of the investment,” the ATO stated.

It also reminded trustees on the importance of ensuring that crypto assets are owned by the fund and are held separately from their own personal or business assets.

“This means the fund must have its own digital wallet, separate to any used by you for personal or business purposes,” it said.

The investment must also be valued at market value in line with the ATO’s valuation guidelines.

Trustees also need to be careful to ensure that any crypto assets that a member or related party hold personally are not sold to the fund or transferred to the fund as a contribution.

The investment must also be consistent with the sole purpose test and must not involve the giving of financial assistance to a member.

“From a tax perspective you also need to be aware of your tax responsibilities when buying, selling or investing in crypto assets which must be undertaken on arm’s length terms,” said the Tax Office.

“As a crypto asset is a capital gains tax (CGT) asset, there are CGT implications when disposing of it. You need to work out if there is a capital gain or loss arising from the disposal, and report it on the SMSF tax return.”

Trustees will also need to determine the income associated with the crypto assets that they hold such as staking rewards and report it on their return.

“You must keep records of all transactions associated with acquiring, holding, and disposing of crypto assets,” said the ATO.

In a webcast in August this year, Cadena Legal director Harrison Dell said that with financial advisers restricted from giving advice on essentially all crypto products, it’s difficult for SMSF investors to obtain advice on this asset class.

“Obtaining an investment strategy that states ‘we’re allocating 10 per cent to crypto’ is not something you’ll get straight from your adviser; you’ll have to do that yourself,” said Mr Dell.

Crypto Tax Calculator chief executive Shane Brunette said that at this stage, it’s still very much a case of individuals doing their own research and taking on their own individual risks.

“[Investors] need to understand from their own perspective whether its something worth investing in. Hopefully, that’s part of a diversified outlook where you’ve just got a small amount of funds invested with the hope of taking a view from a technology point of view that [a particular crypto asset] is going to be useful at some point in time and has core fundamental value,” Mr Brunette explained.

“[There’s still] a lot of people making money out of advice which perhaps they shouldn’t be giving in terms of investment strategies, and a lot of this leads back to scams. We see it all the time.”