The digital currency landscape continues to be treacherous terrain for self managed superannuation fund (SMSF) trustees, with a growing number of reports indicating significant losses due to a variety of factors, including scams, theft and collapsed trading platforms. The ATO is urging trustees to educate themselves on the potential pitfalls of crypto investing, including the fact that many crypto assets are not classified as financial products. This means that the platforms facilitating their trade often lack regulation, increasing the risk of loss without recourse.
The ATO has identified several causes of crypto investment losses, such as the following:
The ATO is urging trustees to educate themselves on the potential pitfalls of crypto investing. Resources such as the Australian Competition and Consumer Commission’s (ACCC's) Scamwatch and the Australian Securities and Investments Commission’s (ASIC's) MoneySmart provide valuable information on recognising and avoiding scams. Moreover, the ATO highlights that many crypto assets are not classified as financial products, meaning that the platforms facilitating their trade often lack regulation. This increases the risk of loss without recourse.
For those SMSF trustees faced with the loss of a digital wallet, the first step is to determine whether the loss is simply one of lost access or if there is loss of evidence of ownership. In either case, meticulous record-keeping is the key to navigating the situation. The ATO allows for the claim of a capital loss if trustees lose their crypto private key or if their cryptocurrency is stolen. However, to substantiate such a claim, trustees must provide comprehensive evidence, including the date of acquisition and loss of the private key, the associated wallet address, the cost to acquire the lost or stolen cryptocurrency, and the amount present in the wallet at the time of loss. Additionally, proof that the wallet was under the trustee’s control, such as transactions linked to their identity or hardware that stores the wallet, is essential.
It is important to note that while some may still consider cryptocurrency to be private and anonymous, and may baulk at reporting any gains they’ve made, the reality is quite different. The ATO has the ability to track cryptocurrency transactions through electronic trails, in particular where it intersects with the real world. In addition, through data-matching protocols, the ATO requires cryptocurrency exchanges to furnish them with information on transactions, making it possible to trace and tax crypto trades. Trustees are therefore encouraged to report all transactions.
For SMSFs that run businesses and accept cryptocurrency as payment, the approach to accounting is akin to dealing with any other asset: the value of the cryptocurrency needs to be recorded in Australian dollars as a part of the business’ ordinary income. In addition, where business items are purchased using crypto, including trading stock, a deduction is allowed based on the market value of the item acquired. SMSFs that run businesses should also be aware that there may be GST issues with transacting in crypto.
Source: www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/smsf-newsroom/losses-from-crypto-investments
www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/self-managed-super-funds-smsf/in-detail/smsf-investing/smsf-investing-in-crypto-assets